The U.S. Government is Buying a Stake in a Company… Wait, WHAT!?

When the news broke, I was shocked.

A few weeks ago, the U.S. government announced it was in talks to acquire partial ownership in a major U.S. company.

I ignored the news because I didn’t think it would happen.

It’s crazy, right?

The last time the government took over a company was Fannie Mae and Freddie Mac back in 2008.

Those were mortgage companies and the financial markets needed saving following the housing market crash.

There’s no crisis right now.

Well, last week it was revealed the rumors were true.

The U.S. government is acquiring a 10% stake in chipmaker Intel (ticker: INTC).

The move is unprecedented, so let’s break it down.

We need a quick history lesson first.

Congress and the Biden administration passed the CHIPS Act 2022, which provided grants and tax credits to U.S. chipmakers.

Semiconductor chips are critical for our country, especially in places like national security.

However, following the election, Trump made other plans.

Instead of the full grant amount, the Trump administration negotiated a deal with Intel to receive a portion of the grant funding in exchange for the government gaining partial ownership of Intel.

Trump hopes it will make taxpayers some money if the U.S. government sells the shares at a profit.

But why would Intel agree to being partially owned by the government?

Intel has been struggling.

Since a recent peak in 2021, Intel stock is down over 60%.

The stock market is up more than 50% during the same time frame.

And the money from the CHIPS Act we discussed earlier? Intel really needs the money.

Intel is the largest U.S. chip manufacturer… but it’s struggling… the plan was to “right the ship” with grants and tax credits from the CHIPS Act.

But the Trump administration had major concerns about the CHIPS Act.

In March, Trump said the CHIPS Act was a “horrible, horrible thing”

Intel was so worried about losing access to the grants and tax credits, it decided to take the deal with the U.S. government.

It isn’t like Warren Buffett buying stock in a company.

The government isn’t buying shares, Intel is just issuing new shares to give to the U.S. government (at a discount).

Here’s the crazy part.

Intel stock rose on the news!

Intel is up over 12% since the deal was first reported.

It doesn’t make sense.

Why did the price rise?

The deal is an enormous vote of confidence in Intel.

The Trump administration made the deal because they thought it would be profitable.

And betting against the U.S. government rarely works out.

Not to mention the U.S. government is a huge customer of semiconductor chips, especially in the military.

However, I wouldn’t want to be an Intel investor right now.

Politics and business don’t mix.

I want my stocks to make good business decisions and not factor in politics.

And recently, Intel warned investors about a drop in international revenue because of the deal.

A drop in international revenue doesn’t sound so bad… until you realize more than 75% of Intel’s revenue comes from outside the United States.

The deal is certainly unprecedented.

And the stock market doesn’t know how to react.

But the deal is something I want no part of, and you shouldn’t either. If you own shares of Intel… you might think of selling!

How would you feel about owning shares in a company alongside the U.S government?

I’m really curious what you think, so send me an email.