Intel's stock drops after Musk hints at an additional partner for big chip venture

By Barbara Kollmeyer and Britney Nguyen

Intel may not be the only semiconductor company tapped to help with chip manufacturing for the Terafab project, as Elon Musk says discussions with TSMC are ongoing

Intel shares fell Monday after Elon Musk confirmed "discussions" with TSMC over chip manufacturing for Terafab.

Intel shares slipped on Monday after Elon Musk confirmed that Taiwan Semiconductor Manufacturing Co. could take part in his massive chip-making project.

Some viewed the news as a sign of competition for Intel (INTC), which in April became the first to offer support for Musk's Texas-based Terafab chip venture. Intel shares fell 2.6% Monday, while TSMC's U.S.-listed shares (TSM) rose about 2.7% to reach an all-time closing high of $485.80, according to Dow Jones Market Data.

Intel shares have gained 215% so far this year, versus a 60% gain for TSMC's U.S.-listed shares.

"In discussions, but something may come of it," Musk posted on X Saturday in response to a report from Culpium, a Substack focused on Asian technology, which cited sources saying the Taiwanese company was looking at ways to help Terafab run those factories.

"One option has TSMC owning and running a fab that serves only Tesla, SpaceX and xAI, while SpaceX invests or commits to volume," Oppenheimer analyst Rick Schafer wrote in a note to clients published Monday.

Musk acknowledged, however, in response to a separate X post, that any chips from TSMC would likely be in addition to those supplied by Intel.

TSMC declined a request for comment from MarketWatch. Intel did not respond to MarketWatch's request for comment.

In March, Musk announced plans to develop the chip-manufacturing project jointly led by Tesla (TSLA) and SpaceX (SPCX). The companies said they would manufacture 1 terawatt of computing capacity a year - twice as much as is needed by the entire United States. Musk had initially floated a deal with Intel in November 2025, as he noted current partners couldn't make enough of the chips he needed.

At the time, he said SpaceX and Tesla would need as many as 200 billion AI chips per year. Tesla already works with Micron Technology (MU), Samsung Electronics (KR:005930) and TSMC. The latter two will mass-produce Tesla's next-generation AI5 chips next year in Arizona and Texas facilities.

Musk has said Terafab will be a one-of-a-kind facility that can make memory chips, logic chips and packaging used across his companies, such as for humanoid robots, satellites and data centers.

Terafab enthusiasm has been a major catalyst behind the "dramatic ascent" of Intel's stock this year, D.A. Davidson managing director Gil Luria told MarketWatch.

"If it turns out Intel does not participate, or is only one fab technology provider, investors may reconsider the credit they gave Intel," Luria said in emailed comments.

That Musk is considering working with another chip manufacturer could be viewed by investors "as a lack of confidence in trusting the future of his important endeavor to Intel alone," he added.

Musk's comments could be a way for him to negotiate down with Intel, said Luke Rahbari, CEO of Equity Armor Investments.

"I have a hard time believing Intel will be replaced in any significant way," Rahbari told MarketWatch, noting that the U.S. government has investments in Intel, while SpaceX depends on government contracts.

But Terafab could be right to look into both opportunities, Hendi Susanto, a portfolio manager at Gabelli Funds, told MarketWatch.

While TSMC has proved itself as a leader in advanced chip-making processes, "Intel still must prove it can deliver on 14A in high volume" and that it can master the advanced high numerical aperture extreme ultraviolet lithography manufacturing technology, Susanto said in emailed comments.

Still, Intel brings differentiated IP and advanced packaging capabilities, he noted.

The upside for Intel would be new volume that could boost revenue and profitability for Intel Foundry, Susanto said, but the question remains around how much of Terafab's production Intel will win.

In his view, Terafab could use both chip manufacturers, as "dual-sourcing is standard practice in semiconductors."

-Barbara Kollmeyer -Britney Nguyen

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10-05-26 1630ET