Intel Is Raising Billions in Equity. History Says This Is What the Stock Will Do Next.

On Monday, Intel (NASDAQ: INTC) surprised the markets by announcing a $15 billion all-stock offering. After the market closed, it was reported that the offering was so oversubscribed that Intel would upsize it to $20 billion, with the banks selling the stock gaining the option to purchase an additional $3 billion, for a total of $23 billion.

Almost exactly one year ago, Intel converted CHIPS Act grants from the U.S. government into an equity stake, and also sold new equity to outside buyers Nvidia (NASDAQ: NVDA) and Softbank (OTC: SFTBY).

The result? Intel's stock rose roughly sevenfold from its lows one year ago to its highs in late June. Even after the recent pullback and equity offering, the stock has still roughly quintupled compared with the U.S. government's cost basis of $20.47 per share.

So could this new offering lead to another massive gain for shareholders?

Does the capital raise mean Intel is "super successful"?

At first blush, the capital raise is surprising. As recently as July 23, three weeks ago, Intel's chief financial officer, David Zinsner, was asked whether Intel would raise capital, as several other AI-oriented companies had in recent weeks. Zinsner appeared to dismiss the possibility in the near term, saying:

[W]e feel like we're in a really good place from a balance sheet perspective. We have over $30 billion of cash. We have a $10 billion revolver. We've got $40 billion of liquidity. That enabled us to de-lever, which we felt was important to keep us solidly in investment-grade territory, which we wanted to do. Obviously, the fact that revenue and profitability and EBITDA are all expanding helps a lot in terms of the cash flow that throws off to the business. Additionally, we have, I don't know, roughly, call it $10 billion of what I call non-core assets, that can still be monetized on the balance sheet. Although we're not anxious in any stretch to do anything there, that's available to us in the event that we need it. We have seen, by the way, our customers willing to invest with us, and we've had prepays from customers that has enabled us to unlock capacity that's helped us. That said, if we're super successful, which we're driving to, we may need to tap the capital markets to drive some more investment, and we'll stay tuned.

This was just three weeks ago; therefore, one has to ask, did Intel become "super successful" within the past three weeks?

What the $20 billion could be used for

Many believe that Intel might need extra capital to accelerate the build-out of its remaining semiconductor fabs, including Fab 62 in Arizona, scheduled to come online either at the end of this year or in 2027, as well as its Ohio fabs, which Intel had previously said would come online and begin producing chips in 2030 or 2031.

However, the schedule for the Ohio fabs was given by Intel's management about one year ago. Increased demand from the agentic AI revolution over the past nine months may have changed the calculus. The agentic revolution appears to have reaccelerated computing demand generally, both for Intel's server CPUs and across the entire industry, from GPUs, to CPUs, to memory and networking devices.

In addition, as of a year ago, Intel had not landed any significant outside customers for its foundry offerings, at least publicly. However, since that time, the company has launched several of its own products on the new 18A process node, which began high-volume manufacturing last Fall. Not only have those products, such as the Panther Lake CPU, received positive reviews and revenues, but CEO Lip-Bu Tan recently said that 18A yield improvements "continue to track ahead of expectations."

Delivering better products on a leading-edge node and achieving industry-standard yields might have been the proof external customers were waiting for before committing to use Intel Foundry. Intel has been trying to become a foundry for other chipmakers over the past five years or so, but landing big customers has proven more difficult than initially thought.

Yet even if outside customers have been persuaded to use IFS following the successful ramp-up of 18A, it's possible these customers might have wanted to see a stronger balance sheet before committing. Intel has been steadily improving its profitability, especially last quarter, and that improvement is expected to continue. Yet Intel will probably still see pressure on its free cash flow as it invests to complete Fab 62, expand its Ireland operations, and potentially accelerate the Ohio fabs.

Furthermore, given the constraints on semiconductor equipment supply across the industry, Intel may have needed to make purchase commitments for tools, substrates, and other materials for use years into the future. Intel and/or its customers might have felt that adding billions in capital to backstop those multiyear commitments was the prudent thing to do.

Image source: Intel.

The other possibility: buying out Brookfield

There is another way Intel could invest those proceeds in an immediately profitable way: buying out Brookfield Infrastructure Partners' (NYSE: BIP) stake in Fabs 52 and 62.

Back in 2022, Brookfield agreed to invest up to $15 billion for a 49% stake in Intel's Arizona fabs, with Brookfield receiving half of the foundry's profits once operational. As of last quarter, Brookfield had contributed $13.4 billion, suggesting Fab 62 is close to completion. Through the first six months of the year, Intel recorded Brookfield's profit in the fabs at $359 million, which annualizes to $718 million.

However, given that Intel hasn't even fully ramped up Fab 52 yet, and has probably not even started production in Fab 62, that profit figure is likely to rise to a much higher number in the coming years. Thus, Intel management might have calculated that diluting shareholders by roughly 3% was worth the cost of buying out Brookfield, thereby reaping multibillion-dollar annual profits going forward.

The Brookfield deal was similar to the one Intel had made with Apollo Global Management (NYSE: APO) regarding Intel's Fab 34 in Ireland, which produces the Intel 3 node, one node behind 18A. In April, Intel decided to buy out Apollo's stake in Fab 34 for $14.2 billion.

Given the April buyout of Apollo, a Brookfield buyout might also be in the cards. It's notable that Intel initially targeted $15 billion for the equity sale, before it was upsized -- a figure that precisely matches the amount Brookfield invested in the Arizona fabs.

The raise appears to be good news either way

While a sevenfold increase in Intel's stock is unlikely within the next year, the capital raise appears to be good news for shareholders. If Intel buys out Brookfield, that will be additive to earnings per share, even with the dilution factored in. And if the capital raise was to support a "super successful" landing of large outside customers for Intel Foundry, it could be a signal of much higher growth and momentum to Intel's accelerating turnaround.

Billy Duberstein and/or his clients have positions in Intel. The Motley Fool has positions in and recommends Intel and Nvidia. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.