B (4:20)

That's right, we made it to the playoffs where every pitch counts and you can't make an error. I'll be honest, I'm a little sore today, but it's worth it because our team took the game seriously and we won.

A (4:29)

Well, taking things seriously, it reminds me of Public because it is the platform for folks ready to take investing seriously. Public combines a wide range of asset classes with the tools you need to build and manage your wealth, whether it's with stocks, options, bonds or crypto. If you have questions about your investments, no problem, because Public has Alpha, an AI powered research assistant that can help you find the answers you're looking for. Find your account in minutes or less. Get started at public.com brewmarkets that's public.com.

B (4:56)

BrewMarkets paid for by Public Investing Full Disclosures and Podcast Description well, we're going.

A (5:02)

To pivot now to the big news of the day. And we're going to do it by getting really deep into the different controversies around this story. And that is the fact that the markets have been really busy digesting the news that the United States government is taking a 9.9% stake in the chip maker Intel. Now this is seen as a really big move in this administration's appetite for involvement in public companies. And to some, which we're going to come back to, it's become a debate around whether it's overreach, too much involvement in the business sector. Again, we're going to come back to that. But first, a little bit of some context. Back in 2022, the U.S. government passed the CHIPS act, which authorized nearly $53 billion in funding to shore up domestic chip manufacturing. And the concern the time was that the US Was relying too heavily on foreign made semiconductors and that disruption in those supply chains would amount to a national security crisis. And just to put a footnote to all this, there was pretty much bipartisan support for the idea that something needed to be done to reignite semiconductor innovation actually within the borders of the United States. Well, with this move, the United the White House is saying if we're giving taxpayer money to a company instead of it being grants or sort of cash for nothing, we should be able to benefit from the upside of that investment. And so last week, Commerce Secretary Howard Lutnick said as much on cnbc, quote, so we'll deliver the money which was already committed under the Biden administration, and we'll get equity in return for it. So there's a lot going on, There's a lot to unpack. This is constantly involving. So we want to go through, John's going to take us through some of the numbers and then we're going to dig into aspects of this deal and what it means for intel and what it means for the government. Right.

B (6:47)

So some of the numbers. First, the 9.9% stake is purchased for $8.9 billion, some of which will come from a funding earmarked by the CHIPS Act. And the government reserves the right to buy an additional 5% of the company at $20 per share, so long as intel controls its foundry business. So let's start with the valuation. Ann, what do you see in those numbers?

A (7:06)

So let's start with the 9.9% stake. This was announced on Friday. Do you remember? We were sitting here in the studio, we saw this break and we had this moment going. We're going to have to talk about this on Monday. This is really exciting and the thing that really cap our attention is that first 9.9% government stake is being bought at a discount to where intel was trading at the time. One of the reasons that there's been a little bit of concern around this is the idea investors and public equity holders are saying, hang on a minute, why is the government diluting us? They're taking a stake at a cheaper price than we were able to get our hands on the stock. So that's number one. Now there's the $20 per share potential follow up investment for another 5% as you said, and that would also be at a discount to today's share price of $25. Stock went up again today. So one of the reasons of controversy around this is the idea that the government's getting a sweetheart deal, right?

B (7:57)

And I wonder, they keep pitching it as this idea that we're protecting the United States. That's the idea. It's we're protecting the supply chain, shoring it up. Do you see that as the heart of the deal?

A (8:08)

So let's unpack one of the key things you just said. As you just stated, the government reserves the right to buy extra shares in the company so long as intel controls its foundry business. So let's dig into this now. Last week and Monday in our first episode actually we started by talking about the fact that SoftBank, the Japanese tech conglomerate, was buying into Intel. And one of the key things there that caught our eye is that the reason they were doing that was to be a strategic partner to intel with skin in the game by putting in $2 billion. Then SoftBank, it was posited, could then go out, reach out to its incredible network, it's part of projects Stargate and bring customers to Intel. So it could do the following. So the intel which has been investing in building manufacturing plants in Arizona and in Ohio, could find the customers and the volume to fill these plants, something that intel has really struggled to do. So the foundry business, meaning the manufacturing piece of it, is what's really cool to it. Now if we take a big step back and say where are a lot of the chips that Nvidia for example designs? Where are those being made? Well, they're not actually being made in the United States. They might be designed here, but the actual heart of it, the making of them, is happening in Taiwan. And the constant concern is is there a world in which China perhaps moves on Taiwan and the United States, access to the manufacturing of chips goes away. That is the key to all this. When you hear about foundries, that's what it's getting to. And that's at the core of why intel has been at the forefront of, of this idea that the CHIPS act money was being used to actually make the stuff here in the US and.

B (9:45)

The CEO of Intel, Liputan said, pointing out the connection with the United States, quote, as the only semiconductor company that does leading edge logic R and D and manufacturing in the U.S. that's right. As the only one, intel is deeply committed to ensuring the world's most advanced technologies are American made. And he continued, President Trump's focus on US Chip manufacturing is driving historic segments in a vital industry that is integral to the country's economic and national security.

A (10:12)

So this whole concept of national security, which is securing things in the supply chain, it's really important. John, this actually isn't the first move that the Trump administration has made. So earlier this summer, the Defense Department, the Pentagon, actually became the largest shareholder.

B (10:26)

In another public company, MP Materials.

A (10:29)

Right. So MP Materials, the rare earth mining company, $400 million investment in that stock, plus basically guaranteeing a bunch of revenue to that business. So this investment in intel is not the first time that we've seen President Trump's administration moving in to taking stakes in public companies.

B (10:45)

So we've talked about the money.

A (10:47)

Yeah.

B (10:47)

But this also the press release said, will the government have a say? And so it said the government won't have a seat on the board of intel. And it is said to back the current management with, quote, limited exceptions. So, Ann, you've sat on boards. Does this ring true to you? Like, do you. Is this how the board is going to work? The government's just going to have 9.9% and no say?

A (11:08)

Right. So let's talk about what the board is supposed to do. So a couple of things. The board is supposed to spend its time focusing on. The board is there to hold the management team accountable, the CEO Lip Bhutan, the rest of the management team, and make sure that they're doing what they say they're going to do, setting targets for them, setting goals and making sure they're executing against them, paying them to do it, and monitoring and rewarding or not performance. And the board has a fiduciary duty, which it means is they're there to protect shareholders like you or me, if we're intel shareholders. And so this is what, what's really interesting, the government's taking a 9.9% stake. It's called a passive investment. I've got the press release here from intel which goes through the details of this with no board representation. So there won't be a government representative on the board and they won't be voting as part of, as part of the board. Now, it has agreed that it will vote in agreement with, however that board votes on various matters that require shareholder shareholder approval, basically saying it's, we're not going to do anything out of school, we're not going to rattle our sabers. We're sort of going to go along and supportive, but we're not going to try and do anything controversial. That to me is consistent with what I have seen. If you, John Crito Capital turned up and bought 9.9 in Intel, I would expect this to be true. I don't expect this to be carried through to the letter of the agreement when the government's involved and here's why. The government's amount of influence on Intel's ability to go and get customers is profound. Right. We have a very vocal set of folks in government who, you know, have no compunction about going to social media platforms, for example, to talk about what they think should be done. We have a government that really has an opinion and we have a government that is able to use lots of other incentives, whether it's around other kinds of grants down the line or tax strategy, for example, that can impact the world in which intel lives. So even if they're technically, they're passive, I don't think this is a government that likes to be passive. I think this is a government that likes to be active.

B (13:00)

I agree. And do you see this on the way to a fundamental.

A (13:07)

A sovereign wealth. A sovereign wealth, sovereign wealth fund. Okay, let's go out what a southern sovereign wealth fund is and let's talk about where it could go from here. So you do have a lot of nations out there, Norway being one of them, a number in the Middle East. You've also got Singapore as another example. And what a sovereign wealth fund is in those constructs is they are taking the cash that's being generated in the case the middle of east from oil production and in Norway from oil production, for example, and then very specifically taking that cash and investing them often in other sectors to help those nations diversify in businesses and companies that are expected to be high returns in the long run, so that that money can also ultimately come back to the citizens of these nations in the form of investments in infrastructure. But there is a use for these and they attend to and are supposed to transcend different election cycles. Right? They're supposed to be there in place for a really, really long Time. And so President Trump has made it very, very clear that he wants to have a sovereign wealth fund here in the United States. And it's not something that has, you know, that the complexities of it are difficult to unpack. Some people think it's a good idea, and other people think that it's something that runs real risk of being held hostage by the election cycle, by the political cycle. And people who think that it's not a good idea for the United States specifically say, well, we want to know exactly what the profits from a sovereign wealth fund from these investments would be used for. And we actually had coming on the show, one guest, Kevin o', Leary, and we're going to drop that episode, by the way, so that you all can see it. Who really said, I don't like it unless we know that the profits made from investments are going to be used to pay down national debt.

B (14:49)

That's so clear, that's so easy to understand. All right, this money is coming into the United States and then it's going to pay down the debt.

A (14:54)

Right. And in this instance, while indeed the White House has indicated that this kind of deal is probably the first or one of the early ones of more to come and as a result of sort of looks and feels a bit like a sovereign wealth fund, here's what there isn't. There's no clarity on what the profits of this investment will ultimately be used for. No one said, we're going to use it to pay down the national debt. And here's the other thing that's a little bit different. Having worked with sovereign wealth funds over the last several years, usually sovereign wealth funds are really trying to put their money behind companies that have a track record of doing well. Intel does not have a recent track record of doing well. And you can hear that when you hear CEO Lip Bhutan and talk about what he walked into. He literally walked in and said very early in his tenure, the amount of investment and building in foundries, quote, the capacity investments we made over the last several years were well ahead of demand and were unwise and excessive. So to go full circle, sovereign wealth funds are there to provide capital. Well, SoftBank has shown that it will provide capital to intel, but they're also often there to try and add operational value, often in terms of capabilities and people. And we need to hear a little bit more about what intel is going to do when it comes to capabilities and people. And we don't know quite yet.

B (16:17)

That's right.

A (16:17)

We're going to wrap this right now. This probably won't be the last time we talk about these kinds of investments. It certainly won't be the last time that we talk about intel because at least our view over here is the fact that the government's now taken the stake, quite frankly, has increased the amount of attention that intel is going to get. It's going to increase the amount of scrutiny that there is around its performance both in its quarterly reports and in its general sort of operating metrics as updates are provided to the market. We also know that we have to wrap because the bell is about to ring. Well, it's 4:00pm on the east Coast. The markets have closed and we don't have a ticker tape. So let's throw it over to our human ticker, John.

B (16:56)

That's right, The S&P 500 was down 0.4% today and the Dow also down almost three quarters of a percent and the Nasdaq finished down to tenths of a percent. So everything finishing down by the end of the day. And Netflix stock was up over one and a half percent today. This after a sing along version of the Netflix animated film K Pop. Demon Hunters was the number one movie at the domestic box office this past weekend.

A (17:23)

I love that. I actually, I haven't seen it yet. I think it is time for me to go and check out the latest movie. Well, just a final thought because there is one company that we're excited to watch over the course of this week. And this is coming from completely personal bias and experience because this weekend I spent a ton of time looking for home furnishings to refresh my apartment full on nesting mode, trying to get in there and get the benefit of Labor Day sales. Now in the midst of all this, trying to get ahead a little bit of what could be another round of tariffs coming into the furniture industry because on Friday, President Trump announced that, quote, we are doing a major tariff investigation on furniture coming into the United States and that once that investigation is completed, there would be a move to, quote, bring the furniture business back to North Carolina, South Carolina, Michigan and states all across the union. So the markets heard from that tariffs are coming on imports of furniture into the United States. And just to take a quick look at what happened to stocks today, we saw Wayfair down as much as 7%, Restoration Hardware down 6%, Williams Sonoma down as well, while others like Ethan Allen and Lazy Boy, which manufacture more in the US Held up a little bit better. Well, Williams Sonoma's earnings are out this week. So we're going to be looking at that one to see if there's any preemptive response to what might be coming next. So stick with us later this week. It's going to be an exciting one. Coming up. That's it, folks, for today's Brew Markets Daily.

B (18:48)

Brew Markets Daily is hosted by Ann Berry and produced by John Crateau, Tarek Abdelatif and Emily Milian. Our technical director is Uchena Waagu, and the president of Morning Brew Inc. Is Devin Emery. If you'd like to get in touch, send an email or voice memo to brewmarketshow morning brewshow.com and wake up tomorrow.

A (19:04)

With the Morning Brew newsletter. And tune in to Neil and Toby on Morning Brew Daily. We'll see you back in it, folks. Same time, same place tomorrow.