Intel (INTC) experienced a significant surge in its stock on Monday following the announcement of a plan to establish its manufacturing business as an independent subsidiary, along with an enhanced partnership with Amazon (AMZN).
The company saw its shares rise sharply after securing a $3 billion federal funding award designated for chip production for the Pentagon.
Intel’s Strategy for Independence
In a major restructuring initiative, Intel has proposed transforming its manufacturing division into a standalone unit with its own governance, as reported by CNBC. CEO Pat Gelsinger mentioned that this change would facilitate the foundry business’s ability to explore independent funding sources. This announcement came after speculation about the potential spin-off or sale of Intel’s manufacturing division, which previously led to a stock rally.
Once a leader in the semiconductor industry, Intel is currently facing numerous challenges, including production setbacks and stiff competition from companies like AMD and Nvidia. The foundry segment is significantly lagging behind Taiwan Semiconductor Manufacturing.
Intel has also been perceived as falling behind in key technological advancements, particularly in the areas of cloud computing and artificial intelligence.
Collaboration with Amazon Web Services
In addition to the restructuring, Intel unveiled a new partnership with Amazon Web Services focused on the development of custom AI chip designs under a multiyear, multibillion-dollar framework that includes both product and waivers from Intel.
Funding from the CHIPS Act
During Monday’s trading session, Intel confirmed that it has been awarded up to $3 billion in direct funding from the Biden Administration as part of the CHIPS and Science Act. This funding is intended for the Secure Enclave program, through which Intel will produce chips for the Defense Department. This follows a Bloomberg report that indicated Intel might be eligible for up to $3.5 billion in funding.
This recent award is in addition to the $8.5 billion in CHIPS funding disclosed in March for Intel’s facilities located in Arizona, Ohio, Oregon, and New Mexico.
Stock Performance
Intel’s stock saw an 8% increase in after-hours trading and rose by 6.4% to close at $20.91 during Monday’s session, making it the highest performer in the S&P 500. It’s worth noting that INTC stock had previously reached its lowest level in almost 14 years last week.