Huge profit for Intel (NASDAQ:INTC) sends share price soaring

A win for chipmaker Intel? (INTC) Yes, it happened, and Intel is up over 6% on Monday afternoon thanks to the news. Intel has landed a major new contract with the U.S. government, and not for free money and cheap loans, but for actual chip sales.

The latest word from Bloomberg Intel says the Secure Enclave program qualifies to receive $3.5 billion in federal funding that Intel will use to manufacture chips for the Pentagon. As chips become increasingly important in military operations, a reliable domestic source for those chips is essential. And so Intel – with its Arizona manufacturing facility and several others – was perfectly suited to meet that need.

However, since Intel already receives a fair amount of federal funding through the Chips and Science Act – although that’s a bit questionable at the moment – some are pointing out that it might be a good idea to develop more than one such source. For fundamental reasons, this is a good idea; single suppliers are great as long as nothing goes wrong.

Problems and solutions

Things got a little worse from there, as a Reuters report detailed how Intel ultimately lost business with Sony (SONY). In 2022, Intel lost the contract to manufacture chips for the upcoming PlayStation 6 to AMD (AMD). This meant that about $30 billion in revenue that should have gone to Intel was now lost to AMD instead, largely due to “disputes over profit margins.”

Worse still, Intel is now limited to the bare minimum when it comes to cost-cutting options. Intel has now reportedly eliminated “coffee stations” and “phone benefits.” The reports from calculator Intel offered cell phone contracts to a large number of employees and also set up “luxurious coffee stations,” which are now being scaled back. Dilbert The Strip once embraced this concept when Catbert announced cuts that eliminated free soft drinks, then free bottled water and coffee, before finally requiring workers to stop swallowing their own saliva.

Should you buy, sell or keep Intel?

As for Wall Street, analysts have a consensus recommendation for INTC stock based on one Buy, 26 Holds, and six Sells over the past three months, as shown in the chart below. After a 44.46% loss in the past year, INTC’s average price target of $26.09 per share implies an upside potential of 24.95%.

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