US Senator Bernie Sanders has thrown his support behind President Donald Trump’s plan to take government stakes in chipmakers, including a $10.9 billion award to Intel, in exchange for federal grants. This move, part of the 2022 CHIPS and Science Act, aims to boost domestic semiconductor production and reduce reliance on Asia. Sanders announced his support on Wednesday, stating, “If microchip companies make a profit from the generous grants they receive from the federal government, the taxpayers of America have a right to a reasonable return on that investment,” emphasizing that profitable companies benefiting from government subsidies should share their returns.

This rare alignment between Sanders and Trump reflects a notable shift in US policy towards state intervention in the economy, a characteristic often associated with the left. The Trump administration has reinforced this trend through earlier deals, such as allowing companies like Nvidia and AMD to sell AI chips to China in exchange for a revenue share, and the Pentagon's pursuit of stakes in mining companies to boost rare earth magnet production. Sanders had previously proposed an amendment to the CHIPS Act to ensure the Treasury Department receives equity or debt instruments from recipient companies.

These developments come as Intel faces financial challenges and security scrutiny, including reports of its CEO's past investments in Chinese firms. While Intel's stock fell 7.1% following the announcement of a potential government stake, investors are evaluating whether this government partnership will bring the necessary stability or increase regulatory risks.

Market Signals

Sector-Wide Implications: This development signifies a major shift in US industrial policy, moving towards greater government ownership in strategic sectors like semiconductors, potentially setting a precedent for other critical industries.
Stock Movements: Intel's stock has shown volatility in response to these discussions, as investors weigh the potential benefits of government support against the risks of increased oversight and political interference.
Competitor Positioning Changes: Other semiconductor companies like TSMC and Samsung may face increased scrutiny or pressure to align their strategies with US interests.

Winners & Losers

Intel: May benefit from capital and a more stable operating environment but risks increased oversight and reduced flexibility.Competitors: May face indirect governance risks or pressure to align with US priorities.Supply Chain: Increased domestic production capacity in the US aims to reduce reliance on Asian supply chains, potentially impacting Intel's operations in Ireland.

Action Timeline

Immediate: Investors are assessing Intel's stock amidst market volatility.
Short-term: Monitoring the final terms of the government deal and its implications for competitors.
Long-term: Observing whether this represents a sustained shift in US industrial policy.

Risk Assessment

Regulatory Risks: Increased oversight and political interference could slow decision-making and hinder innovation.
Market Uncertainty: Government involvement might deter some private investors due to concerns about political volatility.
Geopolitical Tensions: Trade wars and geopolitical tensions could continue to disrupt semiconductor supply chains.

Key Indicators

Market Signals: This move establishes a model for public-private partnerships in strategic sectors.
Leading Indicators: Intel's ability to attract key customers like Nvidia with government backing.

Regional Perspective

Bernie Sanders' unexpected support for Trump's plan highlights a rare short-term alignment, pointing to a growing consensus on the need for state intervention in critical industries to safeguard national security and US economic interests.

Immediate Implications

Next Steps: The specific terms of the government's stake in Intel will be determined.
Opportunities or Risks: Intel's stock will remain volatile as investors await the deal's details.

What to Watch

Leading Indicators: Finalization of government deal terms, including stake percentage and voting rights.
Expected Developments: The reaction of other major chipmakers to this government intervention.
Key Decision Points: Intel's ability to secure key customers under government backing.

Analysis

This development marks a strategic shift in US industrial policy, with the government increasingly leaning towards direct intervention in critical sectors. The alignment between Sanders and Trump underscores the emphasis on national security and competitiveness in the semiconductor industry, but it also raises questions about balancing state objectives with commercial goals in a competitive global market.