Summary
Market Driver: Comments from Fed Chairman Jerome Powell concerning softening conditions for interest rate cuts, which further boosted the stock market.
Top Performer: Intel's stock led the semiconductor sector with more than 4.5% increases, rebounding from a choppy week.
Struggling Giant: Shares of NVIDIA saw less interest in their gains (1.4%) as it has been reported that several Chinese firms were discouraged from the purchase of its H20 AI GPUs.
Broad Rally: AMD, Qualcomm, and Broadcom soared to above 2% gains.
Intel Shares Surge Over 4% on Fed Comments Favoring Semiconductor Sector
Intel Corporation's shares rallied on Thursday along with broad-based lifts across the semiconductor sector, fueled by Federal Reserve Chairman Jerome Powell's Jackson Hole comments seemingly lending credence to the prospect of interest-rate cuts. This favorable turn of events in the market helped revitalize Intel following a somewhat tempestuous week with respect to investment news and anxiety about possible dilution in equity.
Market Reacts to Powell's Dovish Tone
Chairman Powell's comments, which, in a nutshell, contained something like: "the baseline outlook and the shifting balance of risks may warrant an adjustment to our policy stance," were interpreted by the market as dovish. Thus, indices like the S&P 500 and NASDAQ reacted: (+1.4%) and (+1.70%), respectively. The news also helped semiconductor stocks emerge as one of the major stayers in those upward drives.
Although Intel beat all chipmakers, other major players also did well. Shares of AMD, Broadcom, and Qualcomm jumped more than 2% during the day. On the contrary, AI leader NVIDIA lagged with a gain of 1.4% due to the continued pressure its stock faces from reports that the Chinese government has discouraged local companies from purchasing its H20 AI GPUs.
Details Reveal US Investment in Intel
Intel's rally comes after a period of heavy turbulence with the announcement of a $2 billion investment from Softbank initially sending shares shooting upward by as much as 7%, but falling the next day by the same amount because of reports indicating the Trump administration was planning to convert CHIPS Act grants into an equity stake.
Details of that deal have now been made clear. The government will take a 9.9% stake in Intel. Other details include:
- Funding: The stake from the conversion of CHIPS Act grants amounting to $7.9 billion and a $3.2 billion Secure Enclave award from the Pentagon into equity will fund the stake.
- Passive Investment: The government does not get a seat or major governance rights on the board and will vote on most matters together with Intel's Board of Directors.
- Share Price: The government is buying 433.3 million shares at $20.47 per share.
- Foundry Condition: It also includes a five-year warrant to purchase an additional 5% of Intel's shares, which is only exercisable if below 51% of Intel's ownership of its foundry business is achieved by Intel.
President Trump has hailed the deal publicly as a "tremendous deal," which may serve as a model for similar semiconductor investments. However, according to BofA analysts, while this strengthens US-based manufacturing, it dilutes the current shareholders by 10% and will probably increase scrutiny by customers in China.
