Intel’s Foundry Ambitions Face Setback as Key Client Opts Out

Intel US4581401001

Intel's strategic pivot to become a major semiconductor foundry has encountered a significant hurdle. The company's shares came under pressure following reports that Nvidia, after completing evaluations, has decided against manufacturing its chips using Intel's advanced 18A fabrication process. This development casts renewed doubt on Intel's ability to attract large external customers to its nascent foundry business.

The market's response was swift. Intel's stock declined between 2% and 3% in early trading, with pre-market losses reaching as much as 3%. In reaction to the news, the company has subtly shifted its communications focus. An Intel spokesperson stated that while the 18A technology is progressing well, there is "strong interest" in the subsequent 14A process generation. This indicates a strategic emphasis moving beyond the current 18A node toward its successor.

The decision by Nvidia is particularly notable given the recent financial ties between the two chipmakers. Earlier this year, Nvidia invested approximately $5 billion in Intel, making the subsequent rejection of the 18A platform a pointed development.

Analyst Sentiment and a Notable Exit

Wall Street's view of Intel remains predominantly cautious. According to consensus data, the average rating on the stock is "Hold," with a mean price target of $38.09. A breakdown shows 20 analysts recommend holding, 6 advocate selling, and only 5 suggest buying.

One prominent market observer has taken decisive action. Stephen Guilfoyle, President of Sarge986 LLC and a seasoned trader, closed his long position in Intel following the Nvidia announcement. He cited a "rising wedge" technical pattern formed since early August, which is typically interpreted as a bearish reversal signal. Guilfoyle expressed some discomfort with the exit, acknowledging the substantial backing Intel receives from the U.S. government. Through a combination of CHIPS Act grants and Secure Enclave program funding totaling $8.9 billion, the federal government has acquired nearly a 10% equity stake, becoming Intel's largest shareholder this year.

The Persistent Challenge of Manufacturing Yields

A core issue plaguing the 18A process is manufacturing yield—the percentage of functional chips produced. During the Q3 2025 earnings call, CFO David Zinsner acknowledged yields remain a challenge but did not provide specific figures. Internal sources indicate current yields are sufficient to ensure supply but are not yet at the level required to achieve target profit margins.

John Pitzer, Corporate Vice President at Intel, noted that production for the upcoming Panther Lake processors is following the industry-standard improvement curve, with yields typically increasing by about 7% per month.

Skeptical Voices and Long-Term Concerns

Some analysts maintain a critical stance. Bank of America's Vivek Arya continues to rate the stock "Underperform" with a $34 price target. Arya is particularly concerned about Intel Foundry's cost structure and estimates that peak capacity for the 18A process may not be reached until 2030 at the earliest. Based on his 2027 earnings estimates, he views the stock's current price-to-earnings ratio of around 50 as overvalued.

The 14A Process Emerges as the Pivotal Test

With securing major external clients for 18A proving difficult, Intel's turnaround hopes are increasingly pinned on the success of the next-generation 14A fabrication node. The company is redirecting efforts toward securing contracts for this more advanced technology.

The planned 2026 processor families, Panther Lake and Nova Lake, are now seen as critical proving grounds for Intel's manufacturing capabilities. Successfully delivering these internal products with compelling technology and quality on the 14A process could serve as a vital signal to potential foundry customers for future nodes, making 14A a key determinant of Intel's foundry strategy.