Yes, INTC Should Raise Equity

Doing the math behind a 10% dilution + EPS impact

Intel Should Raise Capital

SemiAnalysis recently came out with an article about how Intel should raise equity capital, in light of Alphabet and Meta’s planned equity raises. In that article, they basically talk about how there is close-to-unlimited demand for Intel’s foundry capacity and therefore it makes sense to treat Intel as a startup and raise capital to take advantage of the growth opportunity.

Initially, the contrarian in me felt that was overstating the problem. Investors tend to get caught up in narratives, and building a case for raising equity around a yet unproven Terafab and Agentic CPU ramp felt like just another peak cycle story, which could fall flat if the CPU cycle suddenly turned into a draught. The problem with a lot of these types of articles is that they get bogged down in narratives, and are short on math. So rather than depend on frothy forecasts of a foggy future, I sat down and determined to do the hard math on whether Intel’s shareholders should pay the price, and whether there was a margin of safety in an equity raise.

The answer? Yes, Intel should raise equity capital while the going is good. This article should hopefully provide some hard numbers behind what an Intel equity raise could look like.

Firstly, an equity raise could not only help reduce debt but also increase fiscal space to take on more financial leverage. Currently, Intel is pretty maxed out on its leverage profile with its Total Debt sitting at around $50B, giving it a D/E ratio of about 0.4x (current Book Value: $125B). A 10% equity raise at its current market cap of $600B would effectively allow them to pay back all their debt — and the additional equity paid-up capital would raise their Book Value to about $180B.

Assuming that they maintain the same financial leverage with a D/E ratio of 0.4x, that would allow them to raise an additional $20B in incremental debt (180 x 0.4 - 50), bringing the total capital raise from debt and equity to a $80B ($60B + $20B). If we assume they can perform at a historical 10% ROA on capital invested from Foundry investments (vs. TSMC’s ROA of 15%), that should provide an incremental $8B in normalized Operating Profits from Foundry.

Assuming further that they can raise debt at a finance cost of 4% (double their historical rate of 2%), that would result in incremental finance cost of nearly $1B (20 x 4%). Offsetting that from the aforementioned incremental Operating Profit of $8B should yield a final additional Net Profit of about $7B from Foundry.

Considering that Operating Profit from Intel Products (i.e. non-Foundry) was only $12B in FY25, this additional Foundry profit of $7B would represent a 60% increase in Net Profits. Hence, it would make sense to dilute shareholders by 10% in order to gain access to this 60% increase in Net Profits.

Let’s try and look at this from another perspective. Assuming conservatively that Intel would only ever recover to its historical normalized profit of about $20B, then at a $600B market cap their cost of equity would be about 3% + growth (about the same as GOOG’s planned equity raise). Compare this to a normalized ROA of around 6% (assuming $20B Net Profit and $300B “new” Total Assets), and you start to see how an equity raise might make sense from an ROIC > WACC perspective.

This is assuming a 10% equity dilution. What if we did the math for a 20% equity dilution? That would raise $120B from their current market cap of $600B, bringing Book Value to $240B and allowing an incremental debt raise of $50B, for a total equity + debt raise of $170B. Assuming normalized ROA of 10% on that and 4% finance cost would yield Foundry Operating Profits of $15B, which is more than double of non-Foundry operating profits in FY25.

In summary, there does indeed appear to be a margin of safety in Intel performing an equity + debt raise and investing the proceeds into Foundry. There also appears to be financial leverage in the equity raise (i.e. 10% dilution for 60% profit increase), so perhaps it might make sense to go for a 20% equity dilution at the current market cap.