Intel's stock has made one of the most unexpected upturns in recent Wall Street history. The semiconductor company's shares have increased by almost 90% since early August, as reported by Bloomberg, following the completion of $18 billion in equity sales to the U.S. government, SoftBank Group, and Nvidia.
The company, which continues to operate at a loss, is utilizing these agreements to replenish its cash reserves and support its shift into becoming a leading chip producer for other companies. The reasoning behind this surge contradicts conventional market principles, as issuing new shares usually leads to dilution, reducing the value of current shareholders' holdings.
Bloomberg estimates that Intel’s shareholdershave decreased by approximately 14%, andpredictsthat it would probably rise when the U.S. government's warrants are executed under specific conditions.
But the market doesn't seem concerned. Investors appear to prioritize liquidity and survival over the size of shares at this moment. Michael Bailey, research director at Fulton Breakefield Broenniman, stated:
Investors are anticipating all this positive news and significantly reducing the actual cost — with so many share sales happening, there's substantial dilution. It's a scenario with both advantages and disadvantages. Investors are wagering that the benefits outweigh the drawbacks.
Intel gains temporary relief while working towards a manufacturing comeback
This wave of optimism arises as Intel encounters significant financial demands. The company is currently in the midst of acostly buildout of factoriesfocused on restoring its status as a competitor to Taiwan Semiconductor Manufacturing Co. (TSMC) in the foundry sector.
The $18 billion collected to date accounts for just slightly more than half of the $30 billion required to construct its new-generation facility. This gap prompted the company to reach out to Apple at the end of last month regarding possible funding, a development that caused Intel's stock to rise by an additional 21% over three trading sessions.
The financial statement improvement is offering Intel a brief respite, despite investors ignoring the negative impact of stock dilution. Experts believe this may not last long unless the manufacturing business gains customers.
Frank Lee of HSBC downgraded Intel's rating to sell, cautioning that "rallies fueled by stake sales are not long-lasting" until customer demand increases. However, currently, traders believe that the influx of capital provides Intel with sufficient time to carry out its recovery plan.
The method is similar to AMD's recent moves. On October 6, AMD entered into a significant agreement with OpenAI that has the potential to generate tens of billions of dollars over time.
As a result, OpenAI obtained equity warrants that become exercisable upon achieving certain milestones. The market responded intensely, with AMD stock increasing by an actual 43% over three trading days, even though the potential future dilution was clear.
Similar to Intel, AMD's investors are overlooking the numbers in favor of hope related to the AI trend.
Experts caution about potential dangers as funding in the AI era creates uncertainty
Jay Goldberg of Seaport Global commented on Intel's position, posing the question: "Would you rather have 80% or 70% of something, or 100% of nothing?" He changed his stock rating from sell to neutral, noting that investors would rather own a smaller share of a stable company than see it collapse.
Meanwhile, AMD is in a better financial position, with its net income tripling to $872 million in the last quarter, and revenue increasing 32% to $7.7 billion, as Healthy urvivalreported.
However, even with those figures, AMD holds only a minor share of the AI GPU market, which is primarily controlled by Nvidia, so its partnership with OpenAI aims to alter this situation.
According to the agreement, OpenAI has the option to purchase up to 160 million AMD shares, representing roughly 10% of the company, at a price of one cent per share, provided certain stock and performance targets are met. The last vesting condition is activated when the stock reaches $600 per share, which would value AMD at $1 trillion.
The broader AI environment is also caught in a cycle of mutual investments. Nvidia has recently committed up to $100 billion for OpenAI's growing network of data centers, which are equipped with its own hardware, even though OpenAI continues to operate at a loss.
Bailey described it as "an unusual circular financing situation," where businesses "discover innovative methods to expand." He mentioned, "Investors are analyzing the numbers and for now they're at ease with it. However, when considering the history of Wall Street, this is rare."
Join Bybit nowand receive a $50 bonus in minutes