Intel’s Foundry Ambitions Face a Critical Test

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As 2025 draws to a close, Intel finds itself at a pivotal juncture in its corporate transformation. While the company reports significant technological progress with its advanced 18A manufacturing node, a strategic retreat by partner NVIDIA has cast fresh doubt on the viability of its foundry strategy. The central challenge for Intel will be converting its technical milestones into substantial, high-volume contracts from external clients.

The heart of Intel's ongoing turnaround is its foundry business. A cornerstone of this effort is the operational separation of the manufacturing division into a wholly-owned, yet legally distinct, subsidiary. This move, championed by CEO Lip-Bu Tan since his arrival in March 2025, aims to eliminate perceived conflicts of interest between Intel's role as an internal chip designer and an external contract manufacturer, thereby attracting outside customers.

Concurrently, the company has fortified its financial position through a substantial agreement with the U.S. government. The state now holds close to a 10% stake in Intel, backed by billions in funding support. This effectively anoints Intel as America's "national champion" in semiconductor fabrication, a status that bolsters both its capacity expansion plans and its credibility with institutional investors.

A Setback with NVIDIA

Recent discussions were sparked by a Reuters report on December 24th, revealing that NVIDIA has halted testing of Intel's 18A process node and has opted against moving forward with volume manufacturing for the time being. This development is particularly sensitive given that, just last September, the two firms announced a strategic alliance which included a planned investment of up to $5 billion by NVIDIA in Intel stock, pending regulatory approval.

Intel, in a statement, emphasized that its 18A technology is "progressing well" but did not comment in detail on NVIDIA's decision. The stock initially fell approximately 3.3% on the news before paring some losses later in the trading session. The situation presents Intel with a delicate balancing act: it must prove its technology is commercially viable for leading AI chip designers like NVIDIA while simultaneously demonstrating it can succeed without immediate, large-volume external orders.

Technical Progress on the 18A Node

Despite the headlines surrounding NVIDIA, Intel is showcasing clear advancements with its 18A (1.8-nanometer class) fabrication process. The company states that manufacturing yields have stabilized around 60% as of December 2025, marking a notable improvement from levels seen at the start of the year.

Key technical and product developments include:

• Yield Improvement: 18A production yields have reached approximately 60%, a significant gain from early 2025.
• Advanced Features: The node incorporates next-generation RibbonFET gate-all-around transistors and PowerVia backside power delivery technology.
• Product Rollout: Volume shipments of "Panther Lake" (Core Ultra Series 3) processors to notebook manufacturers have commenced. Other platforms, including "Jaguar Shores" and "Clearwater Forest," are slated to follow in volume production.

The underlying message is clear: even without a major external customer like NVIDIA, Intel's internal product roadmap based on 18A is proceeding. This suggests the process is technologically sound, leaving the commercialization to external clients as the primary unresolved challenge.

Stock Performance and Analyst Sentiment

Intel's share price has staged a powerful recovery in 2025, rallying roughly 80% from its late-2024 lows. The stock currently trades around $36.23, just a few percentage points below its 52-week high.

Market analysts offer a mixed, though generally constructive, outlook:

• Deutsche Bank: Raised its price target to $35, maintaining a "Hold" rating.
• Morgan Stanley: Increased its target to $36, with an "Equal Weight" rating.
• Consensus View: The average rating sits between "Reduce" and "Hold," with a mean price target of approximately $34.84.

Notably, these targets cluster slightly below the current trading price, indicating the market has already priced in a portion of the recent turnaround. Many analysts remain in a wait-and-see mode, looking for proof that Intel can fully deliver on its ambitious foundry narrative.

The 2026 Proving Ground

Looking ahead, investors must weigh two competing narratives. On one side is the technical validation of the 18A node, evidenced by stabilizing yields and the launch of internal products. On the other is the commercial imperative: Intel's ability to fill its fabrication capacity with profitable third-party orders.

NVIDIA's decision is undeniably a setback for hopes of securing rapid, large-volume contracts from external AI chip designers. However, the substantial backing from the U.S. government signals a long-term commitment to Intel's role in domestic chip production.

This sets up 2026 as a decisive proving year for the foundry unit. Success in attracting additional major clients and deepening existing partnerships could transform the stock's recent recovery into a foundation for sustained re-rating. Failure to do so would leave the company more reliant on its own product pipeline, with the market likely to punish any further disappointments in order bookings harshly.