12:04 PM EDT, 08/26/2025 (MT Newswires) -- Intel's ( INTC ) recent decision to make the US government its largest shareholder in exchange for the billions of dollars it's owed under the CHIPS Act is a flawed deal for the company, analysts and economists said, as the valuation is too low and it does nothing to address the company's biggest need of finding customers.

Intel ( INTC ) secured around $11 billion in federal funding under the Biden administration, conditional on the achievement of certain milestones. In the new deal announced Friday, the Trump administration converted the subsidy into a 9.9% equity stake in the company to be funded by the remaining $5.7 billion owed to Intel ( INTC ) under the CHIPS and Science Act, the $3.2 billion it was awarded under the Secure Enclave program and the $2.2 billion in CHIPS grants it has already received, for a total investment of $11.1 billion.

"Intel's ( INTC ) CHIPS Act funds were originally structured as a handout with the company receiving the dollars for free as they built out their projects; giving up substantial amounts of equity for them seems clearly worse to us, and the valuation seems very low," said Bernstein Research Senior Analyst Stacy Rasgon in a note to clients.

By way of comparison, the company sold a 49% equity stake in a single chipmaking facility for $11 billion in June 2024, he said.

The stated objective of the CHIPS Act is to expand semiconductor manufacturing and research and development in the US. While the equity stake taken by the government is a hefty sum, it's likely not enough on its own to allow it to keep making chips domestically, as a typical Intel ( INTC ) semiconductor factory costs about $10 billion and takes about three to five years to complete, the company said in 2023.

"They got $11 billion from the CHIPS Act; that was a good start, but they need a lot more to keep manufacturing viable," Jay Goldberg, research analyst at Seaport Research Partners, told MT Newswires in an interview. "The real risk is that they exit manufacturing and say they're not going to build their own chips anymore."

Under that scenario, the US will become almost completely reliant on Samsung and Taiwan Semiconductor Manufacturing (TSM), which in March announced a plan to expand its investment in US-based semiconductor manufacturing by $100 billion, building on its $65 billion investment in Phoenix manufacturing operations.

"But that facility is entirely dependent on R&D and know-how in Taiwan, so losing Intel ( INTC ) would be a major blow to US industrial national security," Goldberg said.

Intel ( INTC ) certainly won't turn down the $11 billion from the deal, but cash is not its main need, Bernstein's Rasgon said.

"Rather, they need third-party customers, lots of them, enough to fill the capacity that we are sure the administration would like to see them build; without customers they will simply continue to light the money on fire," he said.

Rasgon said the White House's next step may be to encourage or force customers into Intel's ( INTC ) arms, a futile endeavor should it come to pass.

"If Intel ( INTC ) can prove that they can make leading edge parts, in high volume, that meet spec, at good cost, and that are available on time, they will have customers lined up around the block to use them," Rasgon said. "And if they can't do this, no customer in their right mind would ever put enough volume with them to matter, regardless of any 'encouragement' the administration might bring to bear."

The chipmaker on Monday flagged several risks associated with the equity deal in a regulatory filing. Intel ( INTC ) said the agreement could limit its ability to secure government grants in the future, it's dilutive to shareholders, and it could adversely impact non-US sales, which accounted for 76% of the company's revenue for the fiscal year that ended Dec. 28, 2024.

White House economic adviser Kevin Hassett indicated Monday that the Trump administration would like to take equity stakes in other companies, but that might not be so easy, Rasgon said.

"Intel's ( INTC ) bargaining position was not very strong," he said. "They may try to do something similar with other companies, but most other companies might just say no. Intel ( INTC ) kind of needs that money, and it wasn't two weeks ago that Trump was calling for (Intel ( INTC ) CEO Lip-Bu Tan's) head. For Intel ( INTC ), it may be better to have Trump on your side than calling for your CEO's imminent resignation."

The Intel ( INTC ) deal has made for strange bedfellows in Washington, with Sen. Bernie Sanders, a democratic socialist independent from Vermont, endorsing the move.

"If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment," he told Reuters Thursday in a statement.

Meanwhile, conservatives including Sen. Rand Paul (R-Ky.) and Larry Kudlow, Trump's former National Economic Council director, expressed dismay over the agreement.

"If socialism is government owning the means of production, wouldn't the government owning part of Intel ( INTC ) be a step toward socialism?," Paul said Wednesday in a social media post. "Terrible idea."

The US's 9.9% ownership will be passive, with no board representation or other information or governance rights, Intel ( INTC ) said Friday in a press release announcing the deal. The government has also agreed to vote with Intel's ( INTC ) board on issues necessitating shareholder approval, with limited exceptions.

Still, the Trump administration will have ways of making its power felt, said John H. Cochrane, economist and the Rose-Marie and Jack Anderson Senior Fellow at Stanford University's right-leaning Hoover Institution.

"At a shareholder meeting, if the government is voting one way, is anyone going to go the other?," Cochrane said in an interview. "There's also the Federal Trade Commission. What's the FTC going to say about a new acquisition Intel ( INTC ) wants to make?

"There's also no constitutional limit saying it can only be 10%. This particular deal, one could excuse it as one of many things going on these days, but it does cross a line, and most of us are worried about the slippery slope."

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