The Macro Divergence

The semiconductor sector trades at 18x forward earnings while Intel languishes at 12x – this discount isn’t accidental. Washington’s CHIPS Act euphoria masks the cold calculus of delayed EUV adoption and TSMC’s 3nm lead. Trump’s proposed 60% tariffs on Chinese semiconductors would theoretically benefit domestic players, but Intel’s 27% China revenue exposure creates immediate demand destruction risks.

Market pricing reflects two contradictory narratives: the political trade (protectionist policies creating domestic moats) versus the operational reality (five consecutive quarters of foundry operating losses). This divergence manifests in elevated put/call skew – the options market prices 25% downside volatility versus 15% upside through Q4 earnings.

Quantitative Logic

The Gordon Model’s sensitivity to growth-rate assumptions exposes Intel’s precarious position. At current $0.50 quarterly dividend with 5.1% yield, maintaining payout requires either: (a) 4.3% perpetual growth (unlikely given 10-year CAGR of 1.2%), or (b) sustained 12% ROIC (versus trailing 1.4%). Every 25bps decline in g demands $1.4B additional annual FCF to preserve valuation – problematic when Q1 FCF was negative $3.2B.

Outlook 2026

Our base case projects Ohio and Germany foundries coming online two years behind schedule, requiring $12B additional debt issuance by 2025. Dividend cut probability rises to 68% if Fed holds rates above 4% through 2024. Bull scenario (20% probability): Biden/Trump continuation of CHIPS Act subsidies offsets Capex bleed, allowing modest buybacks at $38-42 support.