Intel's stock price surge cannot hide the losses in its foundry business, analysts say the likelihood of profitability is extremely low

According to the Zhitong Finance APP, Intel (INTC.US) has recently seen a surge in its stock price due to a series of heavyweight collaborations and financing news. However, the market remains concerned about its core issue, namely the massive losses in its chip foundry business, which have yet to be fundamentally resolved. Despite support from NVIDIA (NVDA.US), SoftBank Group, and U.S. President Donald Trump, investors still harbor doubts about Intel's future profitability.

Last week, Intel announced a new collaboration agreement with NVIDIA and will receive a cash injection of $5 billion through the sale of shares. Boosted by this news, Intel's stock price has risen consecutively, with a cumulative increase of 48% this year, adding over $50 billion to its market capitalization.

This collaboration was reached after the Trump administration announced the acceleration of the disbursement of the promised $8.9 billion in government funds. Additionally, SoftBank has also invested $2 billion in Intel. Analysts point out that this funding undoubtedly strengthens Intel's cash flow capabilities but does not address its most critical issue of capacity utilization.

Ivana Delevska, Chief Investment Officer of Spear Invest, stated, "What Intel needs most is to achieve strong and sustainable profit growth in its foundry business, but this goal is still very far off."

In the past four quarters, Intel's foundry division generated nearly $18 billion in revenue, accounting for about one-third of the company's total revenue, but incurred losses of up to $13 billion, becoming the biggest drag on the company's profitability.

At last week's press conference, NVIDIA CEO Jensen Huang was asked whether NVIDIA would use Intel's foundry services. He stated that this collaboration is primarily "product cooperation" and emphasized that NVIDIA will continue to rely on TSMC (TSMC.US) as its main foundry partner while evaluating Intel's technology.

This attitude reflects the market's skepticism about the prospects of Intel's foundry business. Citigroup analyst Christopher Danely downgraded Intel's rating from "neutral" to "sell" last week, bluntly stating that the chances of success for its foundry business are "extremely low."

According to analyst estimates compiled by Bloomberg, Intel's adjusted net profit for 2025 is expected to be only $640 million, with revenue of $52 billion; net profit is expected to rise to $3.2 billion in 2026, with revenue of $54 billion. However, even if this goal is achieved, based on the current stock price, its expected price-to-earnings ratio for the fiscal year 2026 would be as high as 43 times, approaching levels seen during the internet bubble.

If the stock price further rises to a peak of $50 by the end of 2023, the corresponding price-to-earnings ratio would soar to over 70 times. Nancy Tengler, CEO of Laffer Tengler Investments, pointed out, "In the absence of a sustainable, strong, and accelerating profit growth environment, the importance of valuation cannot be overlooked. Intel's current high valuation is difficult for investors to accept."

Intel is facing enormous capital expenditure pressures. The company's capital expenditures are expected to reach $18 billion in 2025 and remain around $15 billion in 2026, leading to continued negative free cash flow. Tengler emphasized, "The funds and time required to build a foundry are enormous, and there remains significant uncertainty about whether it can ultimately be competitive enough." At the same time, the stock price of Intel's strategic investor, SoftBank Group, has also surged significantly in the Japanese market. Benefiting from founder Masayoshi Son's substantial bets in the field of artificial intelligence, SoftBank's stock price has soared 146% since the start of the new fiscal year in April, becoming one of the strongest components of the Tokyo Stock Exchange price index, with its index weight doubling to 2%, second only to blue-chip companies such as Toyota and Sony Group