Why Intel Is Wise to Issue $20 Billion in Stock Right Now
Key Points
The $20 billion share issuance increases the supply of shares by slightly more than 4%.
Intel plans to use some of the funds to fund working capital and higher capital expenditures.
The stock recently rose to its highest valuation since the dot-com bust.
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Intel (NASDAQ: INTC) just increased its share offering. The company, which had recently announced a plan to issue $15 billion in additional shares, has upped this offering to $20 billion.
Not surprisingly, the chip stock's price pulled back following the initial announcement. However, the shareholder dilution that comes with this move could benefit long-term shareholders. Here's why.
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Image source: Intel.
The Intel share issuance
Intel's stock dropped by just over 4% in Monday trading as it announced the original $15 billion share issuance. Hence, it was a quick change when it decided to raise that offering to $20 billion within 24 hours. The company has issued additional shares at $95 per share, and it expects to net around $19.7 billion from the sale. That dilutes the stock by slightly more than 4%.
Intel plans to use the proceeds for "general corporate purposes." The company explained that that would mean spending on capital expenditures (capex) and working capital.
It probably needs the funds. Intel struggled for years as competitors surpassed it in technical terms, but it has improved its competitiveness under CEO Lip-Bu Tan.
Now, Intel is planning new manufacturing facilities to support Intel Foundry, which the government and other entities hope will bring more chip manufacturing back to the U.S. This is critical, as Intel Foundry is attracting increasing interest, including a major new client worth watching. Moreover, data center build-outs have increased demand for CPUs, an area that will likely attract additional investment.
Fortunately, such investments should benefit Intel. Adding state-of-the-art foundries will likely enhance its reputation as a cutting-edge foundry company as Intel upgrades its chip manufacturing process node. Furthermore, increased demand for CPUs in data centers is all the more reason to invest in improving their processors to stay competitive.
Intel's improving technology likely helped drive a 390% gain in the stock price over the last year, and now, the financials have begun to reflect its increased prominence.
In the second quarter of 2026, revenue of $16.1 billion increased by 25% from year-ago levels. During the same quarter last year, revenue growth was flat, suggesting its investments may already be paying off.
Intel's profit is too small for the company to have a meaningful P/E ratio. Still, the price-to-sales (P/S) ratio stands at 9. That is above the average of 3 over the last five years, and the valuation is coming off the highest sales multiple since the dot-com bust. That arguably makes now a good time to issue shares.
Moving forward with Intel stock
Although Intel's share issuance is probably a bearish sign for a pricey stock in the near term, the move will likely help boost Intel in the longer term.
The share sale gives Intel the capital it needs to invest in capex, likely boosting the competitiveness of its processor and its burgeoning foundry business.
Moreover, its financials have already begun to improve as it upgrades its competitiveness. Hence, while the near-term direction of Intel stock is uncertain, it belongs on investors' watch lists as the company continues to fund its comeback.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.
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