Intel's Terafab Rally Faces TSMC Threat as Elon Musk Expands Chip Partnerships

Intel's recent sharp stock surge, driven in part by its role as a key partner in Elon Musk's massive Terafab chip project alongside Tesla and SpaceX, faces a significant challenge. Musk has confirmed reports that Taiwanese company TSMC, one of Intel's primary competitors, is holding talks to supply know-how and manufacturing capabilities for the planned Texas facility. If these talks materialize, it could diminish Intel's status in the venture and cast doubt on its prospects of remaining the exclusive manufacturing supplier.

According to a report by The Motley Fool, Musk does not plan to build a semiconductor plant to compete in the open market, but rather intends to produce chips tailored to the internal needs of his companies. These needs are immense: SpaceX plans to establish orbit-based data centers within two years, while Tesla is accelerating its robotics division with the goal of manufacturing one million Optimus humanoid robots annually within five years, alongside expanding its robotaxi fleet. The computing scale required for these initiatives is exceptionally high.

Financial Stakes for Intel Foundry

For Intel, the Terafab collaboration could be transformative. Its manufacturing division, Intel Foundry, reported revenues of 5.8 billion dollars in the last quarter, yet 5.8 billion of that came from internal company orders. To make the division a profitable and sustainable business, Intel desperately needs to attract large-scale external clients.

"The high valuation, alongside uncertainty surrounding one of the company's core growth engines, increases the risk if expectations are not met."

One plausible scenario is that Intel will remain the primary chip manufacturer for the venture, while TSMC provides complementary services, including advanced chip packaging—a domain where TSMC commands approximately 95% of the market. While such cooperation could give TSMC a commercial foundation to build additional Texas plants at an estimated cost of 20 billion dollars per plant, it could complicate Intel's recovery efforts.

Sky-High Valuation and Nvidia Ties

Investors must also weigh Intel's current pricing. The stock has surged by approximately 163% since April and trades at a forward price-to-earnings multiple of 63. This high valuation, combined with strategic uncertainty, heightens market risk.

Meanwhile, Musk's artificial intelligence hardware demand extends far beyond Terafab. Reports indicate that SpaceX is in advanced talks with banks and asset managers to raise roughly 40 billion dollars, aimed partly at financing the acquisition of AI chips from Nvidia. SpaceX plans to rely exclusively on Nvidia hardware for its orbital data center buildout, highlighting the staggering scale of global computing demand.