Intel stock crash wipes $12B off US government's stake
What's the story
Intel's stock suffered its worst single-day decline since the 1970s, plummeting by a staggering 29% on Friday. The nosedive wiped nearly $12 billion off the value of the US government's stake in the chipmaker. The drastic fall was triggered by a factory shutdown in Israel and a weaker-than-expected personal computer (PC) market, both of which are expected to impact Intel's earnings this quarter.
Investment impact
Trump administration's investment takes a hit
The massive sell-off has dealt a major blow to the Trump administration, which had acquired a 10% stake in Intel over a year ago.
NVIDIA, another major stakeholder, also saw its investment take a hit with losses of about $6 billion.
Despite Friday's loss, the US government's overall investment in Intel remains profitable.
Analyst response
Analysts downgrade Intel's stock rating
In light of the market downturn, analysts at DA Davidson have downgraded their rating on Intel's stock from "buy" to "neutral."
The report, titled "Not fixed yet," noted that while the PC market is being impacted at an industry level, justifying the current multiple is difficult given how significant the weakness is.
This comes after a strong run for Intel shares, which had risen about 150% this year due to demand for its central processors.
Financial forecast
An explosion and rising memory prices impact Intel's earnings
Intel has projected adjusted earnings per share of $0.25 this quarter, with revenue between $15 billion and $16 billion.
This is significantly lower than analysts' expectations of revenue at $17.1 billion and earnings per share at 43 cents.
The company attributed its lower-than-expected guidance to a struggling PC market affected by rising memory prices and other components, as well as an explosion earlier this month at one of its chip factories in Israel.
Business strategy
Recovery plan relies on foundry business
Intel's recovery plan hinges on its foundry business, which manufactures chips for other companies but has struggled to take off.
The company is the only US-based manufacturer of advanced logic chips and is currently producing its most advanced 18A chip at a new facility in Arizona.
Despite having no external customers for these new chips yet, CEO Lip-Bu Tan said there would be "a couple of customers" ready to announce in the next two quarters.