Advisors Capital’s Feeney Isn’t Enthusiastic About Intel

Key Concepts:

• Intel's investment opportunity
• Government subsidies and involvement (CHIPS Act)
• TSMC (Taiwan Semiconductor Manufacturing Company) as a competitor
• Apple's potential investment in Intel
• AI chip market and Nvidia's dominance
• Data center growth and energy consumption
• Diversification in AI investments

Intel's Challenges and Opportunities

• Challenges: Intel has faced innovation challenges, losing market share to AMD and failing to become a major player in AI chips. Their design and manufacturing processes have encountered difficulties.
• Government Support: The government is heavily investing in Intel, aiming to bolster domestic chip manufacturing. However, government investment alone cannot guarantee faster innovation or smarter engineers.
• Customer Hesitation: Potential customers like Nvidia and Apple are on the sidelines, making investors cautious. The stock price already reflects many assumed positive outcomes.
• Foundry Plans: Intel has been actively seeking customers for its foundry plans. Pat Gelsinger previously tried to build fabs before securing customers, while the current approach is more cautious.
• Geopolitical Risks: Diversifying away from TSMC is crucial due to increasing geopolitical risks. Relying solely on TSMC, even with some US manufacturing, is no longer considered safe.
• Manufacturing Recipe: Intel made poor decisions regarding chip manufacturing recipe development, falling behind TSMC. They are now trying to catch up, which will take time.
• Customer Collaboration: Potential customers need to start working with Intel now, even if manufacturing is planned for five years in the future, as design details depend on the manufacturing recipe.

Apple's Potential Involvement

• Diversification Strategy: Apple may be considering investing in Intel to diversify its manufacturing away from TSMC and secure a second supplier.
• Manufacturing Focus: Apple's interest is likely more about manufacturing capabilities than component design, as they already handle much of their silicon design in-house.
• Government Incentives: Government subsidies and investments could enable Intel to modify its manufacturing recipe and produce at capacity for Apple and other companies.
• Historical Context: The situation is compared to Microsoft's bailout of Apple in 1997, highlighting the unpredictable nature of the technology industry.

Government's Role and Investment Strategy

• CHIPS Act: Intel has already received significant subsidies under the CHIPS Act from the previous administration.
• Ownership Stake: The current administration is turning the subsidy into an ownership stake, aiming to bring returns back to taxpayers.
• Customer Incentives: Incentives are being considered for potential Intel customers to help the company become competitive with TSMC.
• Government Risk: Investing in companies with significant government involvement carries risks due to unpredictable announcements and policy changes.
• Alternative Investments: There are plenty of investment opportunities without direct exposure to government risk, such as Broadcom, which is thriving without government involvement.

AI Chip Market and Investment Diversification

• Growing Market: The AI chip market is expanding, creating opportunities for multiple players.
• Market Share Changes: Nvidia is likely to lose some market share as other companies enter the market.
• Key Players: AMD has good processors for AI workloads, and Broadcom is co-developing AI-based processors with companies like Google.
• Diversified Investment: Investors should diversify their AI investments across multiple companies, including startups, to mitigate risk and capitalize on the growing market.
• Data Center Applications: More information is needed on the profitability of AI applications to sustain data center development in the future.
• Sovereign Wealth Funds: Sovereign wealth funds are investing in building out data centers, indicating global growth potential.

Data Center Growth and Energy Consumption

• Missing Pieces: Despite significant investments in data centers, key pieces are missing, particularly electricity.
• Energy Bottleneck: There are concerns that the energy infrastructure may not be sufficient to power the planned data centers.
• Global Spread: The global spread of data center build-out is positive, as it allows for locating facilities where power is available.
• Company Involvement: Companies are getting involved in developing energy solutions for data centers.
• AI Investment Theme Expansion: The AI investment theme is expanding beyond technology to include utilities and pipeline companies.
• Fungible Data Centers: Data centers need to be fungible enough to move to locations where power and land are available to avoid bottlenecks.

Conclusion:

Intel's potential as an investment opportunity is complex and tied to government support, innovation challenges, and competition from TSMC. Apple's potential involvement could be a significant catalyst. The AI chip market is growing, but diversification is crucial. Data center growth faces challenges related to energy consumption and infrastructure. Investors should carefully consider these factors and the risks associated with government involvement before investing in Intel or related companies.