Apollo’s possible $5B investment likely not enough to solve Intel’s issues

Intel (NASDAQ:INTC) shares have rallied 17% over the past month as a deluge of speculation surrounds the company.

Apollo Global Management (NYSE:APO) has reportedly considered investing up to $5B into the chipmaker. Qualcomm (NASDAQ:QCOM) has also reportedly discussed acquiring a part of Intel, or possibly a full takeover.

While a $5B investment by Apollo could certainly help Intel, it might not be enough to solve its issues.

“If Intel aims to compete with the likes of Taiwan Semiconductor Manufacturing (TSM) and build out its foundry business, it will take a lot more than $5B to even catch up,” said Seeking Alpha analyst Gytis Zizys. “Intel already has done business with Apollo recently, so if anything develops here, it may be with Apollo.”

Most analysts believe an Apollo investment appears more likely than a Qualcomm takeover, mostly due to regulatory issues.

“A $5B investment looks massive without context, but it is not that significant when we compare it to the company’s scale as total assets equalled more than $200B as of the latest reporting date,” said Seeking Alpha analyst Dair Sansyzbayev.

Despite the recent gains, Intel shares are down 53% year to date.

“Moreover, Intel also has already been granted billions in governmental support under the CHIPS Act this year, and it did not help much from the stock price perspective,” Sansyzbayev added. “Therefore, I think that the market’s optimism around INTC over the last few days looks like an overreaction.”

Intel is slated to receive billions in federal dollars related to the CHIPS and Science Act, including $8.5B in grants and up to $11B in loans to expand its operations in Arizona, New Mexico, Ohio and Oregon. It also looks to receive another $3B for the Defense Department’s Secure Enclave program.

“The turnaround story hinges on a strategic balance,” said Zizys. “While the $5B injection from Apollo Asset Management is a good start, it is important to weigh the potential benefits of a full-on Qualcomm takeover.”

If Qualcomm indeed pursues an acquisition, it would likely fail to find regulatory approval in China, which serves as a substantial chunk of revenue for both companies.

“The real razor here in our view would be [Qualcomm’s] willingness to walk away from [application processing/modem] sales to China,” Barclays analyst Tom O’Malley wrote in a note. “We estimate China to have been approximately 27% of the business in FY23 and a significant potential EPS headwind if it needed to be wound down.”