In late August, the U.S. government agreed to take roughly a 10 percent equity stake in Intel, converting about $8.9 billion of previously committed CHIPS and Secure Enclave funds into shares. This is an unprecedented move that effectively swaps subsidies for ownership.
Intel’s SEC filing flagged a number of risks, from dilution to potential hits to international sales as foreign regulators react to U.S. government ownership. Reuters reported that the deal changed CHIPS milestones and expedited $5.7 billion in funding.
The political sales pitch: President Trump said the government “paid zero” for the 10% stake and pledged to “make deals like that” again.
It may sound like good politics and optics. However, it’s flimsy economics.
Markets allocate scarce capital by testing thousands of ideas and rewarding the few that work.
On the other hand, governments allocate capital to achieve policy goals—jobs here, capacity there, security everywhere. Those aims can be worthy, but they’re not the same as maximizing innovation productivity per dollar.
Once Washington becomes a major shareholder, Intel’s decision making can no longer be purely commercial because it’s now tied to government policy making. Intel itself warned that a U.S. stake could complicate global sales.
Government support can help at the margin, but it won’t necessarily turn a bad business into a good one. If you’re looking for a precedent, think Sears.
For a century, Sears was the American retailer. Initially, it dominated with a mail order catalog that delivered products to the doorstep. Later, it became a nationwide mall anchor with beloved brands.
When the terrain shifted to e-commerce, however, Sears under-invested in the next platform and over-optimized the old one. As former Sears executive Mark Cohen put it: “The company has been on a death spiral for well over a decade. It lost sight of the fact that change is a constant.”
Sears limped into bankruptcy in October 2018. The company failed because it didn’t innovate, while Amazon built a superior technology and logistics stack, reinvested relentlessly, and made “Day 1” its innovation religion.
Government money probably wouldn’t have reversed the cultural and technological gap Sears was facing. At best, it would have only prolonged the failing structure.
Intel is not Sears, but parallels exist:
Platform transitions. Sears missed the web; Intel missed successive process nodes and the extreme-scale foundry model.
Allocation discipline. Sears optimized real estate and financial engineering while rivals optimized algorithms and UX. Intel must resist the temptation to optimize to Washington’s scorecard (domestic capacity, milestones, press releases) over global competitiveness (process leadership, price-performance, ecosystem wins).
Narrative vs. moat. Sears had a proud narrative, but Amazon had a compounding moat. Intel now has a powerful industrial policy narrative. Yet, the moat must still be earned—node by node, one design win at a time.
What if the government had propped up Sears?
If the U.S. government tried to help Sears, it would have delayed store closures and maybe saved some jobs—for a while.
It would not have built a cloud, a third-party marketplace, or a parcel network capable of two-day delivery.
Likewise, a government stake in Intel can underwrite capacity, but it can’t force competitive cost per transistor, or a sticky developer ecosystem. Those are innovation outputs of culture and technical leadership, not line items in an appropriations bill.
Here are some reasons why the Intel stake probably creates the wrong incentives:
Moral hazard. If investors believe Washington will socialize downside for “strategic” firms, capital will flow where it’s protected, not where it’s most productive.
Policy drag. Foreign customers and regulators could treat Intel differently because the U.S. government is now on the cap table—Intel explicitly warned of this. That’s a potential headwind to future growth considering Intel generates approximately 70 percent of its sales overseas.
Milestone theater. The amended CHIPS deal already loosened project milestones and accelerated cash deployment. That’s a political win, but not an engineering one.
As an alternative, why not help all U.S. chipmakers compete by funding pre-competitive research, workforce development, immigration of top talent, and stable, technology-neutral tax treatment? Keep equity off the table. Let markets price risk and reward.
If Intel innovates and executes—on process leadership, foundry customer trust, and P&L discipline—it won’t need Washington to be its largest fan and a shareholder.
Supporters boast the government “paid zero” for the stake because it repurposed unpaid grants, but these public funds still carry an opportunity cost. If innovation is the goal, owning 10 percent of a lagging incumbent probably isn’t the best idea. Like Sears, Intel must out-innovate its adversaries or it won’t matter who’s writing the checks to keep the lights on.