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Intel stock is on a dropping spree. We unpack why and what may change it. Years after a major security breach, Booz Allen loses a major client and loses on its share price. Valid stock move or overreaction, we break it down and Capital One is buying bracks. Who wins, who loses and where the market stands. On Monday, January 26, it's Brew Market Daily and Diamondbury. Market details to come. But first, one company's win is a venture capitalist. Major loss. In a time of hot valuations, pressure for OG Financials to stay ahead of disruptive tech, and a lot of VCs chomping at the bit to get their money out of long time investments, this deal caught our eye. Yes, this merger moment is the everything bagel of the market's focus points, public and private right now. Now Capital One Financial has stepped up for one of the biggest fintech transactions of the past year. The diversified financial holding company provides credit cards, auto loans, banking and savings products to both consumer and commercial clients. It's massive. It has a market cap of over $137 billion and based in McLean, Virginia. The company has been around for over 30 years. Now it's buying Brex, the San Francisco based fintech known for corporate credit cards and expense management software. Now Capital One is ponying up a combination of cash and stock, buying Brex for about $5.15 billion. It is the second major strategic move by Capital One in a relatively short time. It bought Discover Financial last year for $35 billion, a purchase that catapulted Capital One into the leagues of card giants like Visa and MasterCard. This Brex deal, once it closes in the second half of this year, adds to Capital One's business payments capabilities. And it's a jump into the fintech arena, bringing with it more than 25,000 Tech Forward customers and a modern API driven infrastructure. Now to some, Capital One is getting a bargain. And here's a bit of context for why Brex launched in 2017 to solve the challenges that startups often face when they try to get corporate cards. Sort of intuitive providers instead want clients that are more established businesses because there's less risk. Well, some of Brexit startup clients have turned into giants themselves like TikTok and Robinhood. For the most part it was really solving a genuine space, a gap in the market. As a result, Brex became a unicorn at breakneck speed. It joined the billion dollar valuation club in 2018. So again just had been founded 2017 and by 2022 it was valued more than $12 billion in its capital raises. Well, now Capital One is buying Brex at a nearly 60% cut to that peak valuation, which means Brexit's earliest investors like Y Combinator are still making a great return. They got an early enough and cheaply enough. But it's later. Investors like the hedge fund Tiger Global who came in later now face no return or even possibly a loss. But the market is still deciding if even this discount brings Capital One enough value for its five plus billion dollars in this acquisition. Because translating Brexit's tech platform and turning that into transformation across the sort of older, older, maybe stodgier, Capital One's massive scale is a big, big lift. And that uncertainty has manifested itself in Capital One stock price jumping around since the deal was announced on Thursday. It rose on the news. It also rose up a little bit today. But Capital One stock price is still fighting the overhang of President Trump's proposed 10% cap on interest rates on credit cards for a year long period. Well, in the private markets, venture capitalists are looking at this big discount, wondering if it's a concrete sign that those peak Covid valuations are never coming back, with investors instead choosing to sell out to get any money back rather than to keep on waiting for better times. Which is a theme that we're also going to keep on watching on the public side of the markets as tech IPOs ramp up this year, signaling the kinds of valuations at which longtime investors are truly willing to get out at. And in the meantime, we've learned some tough lessons. We've seen stocks like Warby Parker and Coinbase, which went public in the 2021 froth. Those really were peaks. They are still struggling to get their prices back up to those levels just a less. And that digging in behind the headlines tells us some things about entry price is everything when it comes to these returns coming on up. Even after an investment from the US Government, intel faces supply constraints, demand limitations and a drop in its share price. We'll take a look at the latest. But first a word from our sponsor, iherb. John, where do your supplements come from?
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The grocery store, right?
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I mean before that.
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Okay, I'm going to say the store, the grocery store people go to. All right. I have no idea.
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Is a sense that with all the headlines over the past year about AI and Nvidia and Data center build out that investors and quite frankly our audience and even sometimes John and I might be experiencing chip fatigue. There are new developments in every day it seems it's a lot to track. Even today Nvidia announcing an investment into coolweave. It just feels like relentless, relentless chip and AI activity and it's just getting difficult frankly to keep mind share amongst the different stories that keep evolving. But even with that being the case, there was a major story that we wanted to shine the light on and that is the major drop in Intel's share price since reporting its recent earnings. Now along with it being one of the companies invested in by the United States government, which means in by US taxpayers, we are keeping an eye on the company really because it is emblematic of so many of the different kinds of challenges that success in the chip space is presented with the different kinds of hurdles, the different solutions needed to get around them and what it actually means to be a public company that has had a track record of underperformance and now has the pressure of having taken us taxpayer money. So we want to keep you up to date on the Latest, John. Shares fell 17% on Friday already they're continuing to fall today over 5%. Let's set the stage for an earth is going on.
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All right, over to Intel Ticker INTC on the NASDAQ market cap of $213 billion and for the quarter that was reported last Thursday, revenue of $13.7 billion was down 4% year over year, earnings per share of $0.15. Now each of those results weren't as bad as some analysts had predicted. They beat just slightly. But again, it's the outlook fueled by supply constraints that got a lot of negative attention from this earnings report. The company estimated revenue for the current quarter so looking forward will be between $11.7 billion and 12.7 billion. The midpoint of that range is about half a billion lower than Wall street projected.
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So the bottom line here is you've got the company struggling with manufacturing issues and with keeping up supply. And this is a tricky one, John, because Intel is facing issues at both ends, demand and supply in different parts of its business. Now the root cause of the disappointing guidance here is that intel made a strategic decision to reduce its manufacturing capacity right ahead of a big increase in demand for its key central processing units. So now this is where it's hit the fan and you basically got this fundamental mismatch going on through int systems. Now the CFO Dave Zinsner said on the earnings call that the company won't have additional supply, particularly of these lucrative server chips, until the end of this quarter. The company has burned through its stockpiles and making more products is going to take several months. This is really bad news for customers. Nothing is worse when you're in the manufacturing industry than not getting your key components on time.
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And they have several different kinds of customers, which is the issue. Part of the problem is the company trying to decide where to put its resources. It's a bit of an identity crisis. Like you said, they sell server chips, but intel has been a household name for decades with personal computing, with the Intel Inside jingle launching in 1991. So personal computing is still the heart of the company. It's its largest division and it brings in nearly twice the revenue of the server. But on the call the company says that demand for server chips is solid, but it still doesn't want to shift production towards that because being too aggressive would alienate its PC customers, its core. And intel wants to stay in that space with an eye to be a leader, taking on AMD and others in the next era of AI capable PCs.
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So that's the server and the client computing side of the business. Now the thing that really caught the headlines, if you'll recall, and in the run up to the government taking a stake in intel last year, is the fact that intel made a strategic decision to get into the actual making of the chips, not just the design of them. A factory unit and that is called its foundry services division. Currently this foundry division, which is hugely capital intensive, enormous amounts of capex needed. Currently this division relies almost exclusively on Intel's own products for orders. It has struggled to land non intel clients, but it desperately needs them to justify the amount of capex that has gone into actually building out this boundary. And for those of you who are manufacturing those like I am, you will know that scale is absolutely critical to cover the capex, to cover the overhead and to make sure that you're truly getting the optimized use of this capacity to be able to make any money over the longer term. So that has been the real issue here and there's a chicken and the egg problem and here's why. In order to be able to attract a client, you want to be able to offer them compelling prices. In order to offer them compelling prices, you need to get your cost down far enough. In order to get your cost down far enough, you need to get clients in and volume in to be able to get the benefit of scale. So which comes first, that lower cost or that volume? And the truth is you've got to try and find a way to lock those down almost simultaneously. And spoiler alert, intel has utterly failed to do that so far. Some clients want proof that intel can deliver not just on the pricing side, but on the quality side. Intel has suffered their reputationally as well, leaving intel hesitant to spend even more capex on a build out until they have some clients. Now you'll remember on it was rumored that Apple would be a client. Intel had said there might be a customer announcement by the end of 2025. Then it became sort of Q1 first half of 2026. We're still waiting, right?
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And on that earnings call they said we might not hear until the end of 2026. CEO Tan, as the bottom line said in an interview last week that intel faces an execution challenge that kept coming up on the call and in interviews and the company is laser focused on improving execution.
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In the meantime, intel is maintain it really doesn't want to miss the boat should the opportunity come about for it to actually fill these plants. But let's just put this in the context of the U.S. government's investment in intel, which you may remember was announced last August. At the time it was expected that having the full weight of the US government behind intel would encourage clients to show up for that foundry business. And it was doubly hoped that this would be an incentive for folks to show because the government's taking a stake alongside a global venture capital giant that is SoftBank. The idea was that the reach, the relationships, the connectivity of these two giants, the US government and SoftBank, would be enough to tempt customers to show up. So this really is crunch time for intel to demonstrate that with the best resources behind it, it can execute. Because if it can't deliver even with this might behind it, there is a real question around whether it could ever deliver at all. So some very quick math on how that government stake is working out. Again, that is taxpayer money. Bloomberg ran the cocktail napkin math on after the government put in about an $8.9 billion stake. You remember that was a combination of chips, act money and some other incentives, the US holding on paper is now worth roughly $20 billion. So even though these question marks are out there, the 275 million shares that the government holds basically has done pretty well. It's about doubled since the time of that original investment decline, despite the recent losses. But again, asking the question, is intel stock being supported by hope and optimism right now? Hope, folks, is not a strategy, right?
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And talking more about government investing, the Trump administration continues to make those investments, with word coming today that the U.S. plans to take a stake in rare earth metal company USA Rare Earth as part of a proposed $1.6 billion funding deal.
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That's right. We're going to keep on watching this, this whole space, this whole topic of government investments. Just remember materials, Lithium, Americas, Trilogy Metals probably going to be more of them. This is just one person's guess, but this intel conversation is really going to hone in the focus on which one of these are going to be winners and which ones perhaps may not work out, at least for now, quite as had been anticipated. Nevertheless, again that math showing that sort of stake from the government worth about double what it was at the time. Nevertheless, the market's still watching to see if these intel share price declines are at risk. Risk of continuing. Let's take a quick break and when we come back, a spin through the headlines that move the market today. Advisors let's take a moment to really think about how you're setting clients up for success in the new year. Having a partner with scale and expertise matters. Vanguard brings both.
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4Pm on the east coast the markets wrapping up for the day. We don't have a ticker tape. So let's throw it over to our human ticker, John.
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All right. The S&P 500 finished up half a percent. The NASDAQ was up 4.10of a percent and the Dow finished up 6.10of a percent for the day. Over to gold. Gold futures continued to rise after breaking $5,000 an ounce over the weekend, up to 5,023 this afternoon. It continues the stunning rally in precious metals with silver topping $100 for the first time on Friday, up over $109 today. Central banks and investors are seeking safety amid geopolitical uncertainty. That along with a weaker US Dollar and lower interest rates have sent gold prices on a tear. Elsewhere around the markets, shares in Booze Allen Hamilton were down as much as 10% today after Treasury Secretary Scott Bessant announced he canceled all Treasury Department contracts with the consulting firm.
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Well, between 2018 and 2020, a Booz Allen employee, you may recall, quote, stole and leaked the confidential tax returns and return information of hundreds of thousands of taxpayers, including President Trump. Now, the department that again is the Treasury Department said It currently has 31 separate contracts with Booz Allen Hamilton totaling just under $5 million in annual spending and $21 million in total obligations. This is not the first time, by the way, that consulting firms like Booz Allen have been in the White House's crosshairs. You may remember that when DOGE first came into being, one of the first things, what was then Elon Musk, Musk's team was laser focused on how much money was going to these third party consultants. Well, again, just to put this specific piece into some context, Booz Allen Hamilton, about $5 million in annual spending from the government right now, 20 plus million in total remaining obligations. That is again with the Treasury Department within the government. Just to put that in perspective though, the company's total annual revenue was nearly $12 billion. Again, set that against the 21 million in total obligations from this department. You could argue 10% stock drop is an overreaction because it's actual revenue amount is sort of a drop in the ocean. Just goes to show how nervous the market gets now when a company upsets the White House, fearing ripple effects and including a perception issue, a reputation issue and perhaps an unwillingness of other companies to do business with one that is in the White House's crosshairs now.
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And this story hit the wire last week. But, but on a day when some folks across the country are digging out from snow or just feeling cold, I thought it would be nice to Think ahead to summer Nathan's Famous, the brand behind the Coney Island Fourth of July hot dog eating contest, has entered an agreement to be purchased by Smithfield Foods ticker SFD in an all cash deal worth $450 million. Nathan's shareholders will receive $102 a share in the transaction, which is expected to close in the first half of this year.
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Smithfield already held an exclusive license to make and sell Nathan's branded meats in North America since 2014. Now, that license was set to expire in 2032, and just facing that expiration, Smithfield instead decided to go all in and the market liked it. Shares are up over 3% today. Well, for those of you battling the travel cancellations, good luck. We feel you. You may notice that there's a little bit of remote filming going on ourselves today. I'm trying to find my way back to studio tomorrow with lots more on the biggest news stories all through the market's eyes. That's it for today's Brew Markets Daily.
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Brew Markets Daily is hosted by Anne Barry and produced by John Croteau, Takab Delatif and Emily Millard. Our Tentacle Director is Uchena Waoghu. Jim Orso is our audio engineer. The President of Morning Brew Inc. Is Devin Emery. If you have any feedback or a company you'd like us to COVID leave a comment or send an email to brewmarketshoworningbrew.com Wake up tomorrow with the Morning.
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Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow. Same time, same place.
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