Intel Shares Fall as Musk Hints at Potential TSMC Partnership for Terafab

Intel shares fell at the start of the week after Elon Musk confirmed that Taiwan Semiconductor Manufacturing Co. is in discussions to participate in Terafab, his planned semiconductor manufacturing project, raising fresh questions about how much of the venture's production and technology work will ultimately go to Intel.

Intel dropped as much as 3% to $115.31 on Monday before paring some of the decline. The move came after a 213% year-to-date rally that had made expectations around Terafab an increasingly important part of the company's renewed foundry story.

The immediate catalyst was a weekend post from Musk. He was responding to a report by technology journalist and researcher Tim Culpan that TSMC was exploring ways to work with Terafab, including potentially building and operating a facility in Texas.

"Just discussions, but something may come of it," Musk said.

That is a significant change in the market narrative around Terafab, even though it does not amount to a deal. Intel had emerged as the first major semiconductor manufacturer publicly associated with the project, and Musk said in April that Tesla planned to use Intel's next-generation 14A manufacturing process for Terafab.

The possibility that TSMC could now assume a substantial manufacturing role has therefore forced investors to reconsider how much of Terafab's expected economic value should be attributed to Intel.

The question has become necessary because Terafab is not just another potential customer for Intel. It is one of the most visible external opportunities for Intel Foundry to demonstrate that it can win and manufacture advanced chips at meaningful scale against TSMC, the world's dominant contract chipmaker.

Why TSMC Changes The Intel Story

Musk unveiled Terafab in March as an ambitious effort by his companies to secure a much larger supply of advanced chips for vehicles, humanoid robots, AI systems and space-based data centers. The project is expected to involve two large fabrication facilities in Texas, while Tesla is also developing a smaller research fab at its Giga Texas campus.

Musk has said the eventual project could produce one terawatt of computing capacity annually, roughly twice the computing capacity currently produced across the United States. Bernstein has estimated that achieving such a scale could require between $5 trillion and $13 trillion in capital expenditure, although the scope and timing of the project remain uncertain.

For Intel, the attraction was obvious. Musk had identified Intel's 14A process as the technology Tesla intended to use for Terafab, potentially giving Intel a marquee customer for a manufacturing platform that is central to its attempt to rebuild its foundry business. That made Terafab more than a potential source of revenue. It offered validation.

Intel has spent years trying to establish itself as a serious alternative to TSMC in contract manufacturing. Winning a large, technically demanding customer such as Tesla would provide evidence that its manufacturing roadmap can attract customers beyond Intel's own products.

The economics of Intel Foundry remain challenging, however. The business generated $5.8 billion of revenue in the second quarter, but outside customers contributed only $293 million, while the division recorded a $2.1 billion operating loss, according to data cited by Yahoo Finance.

That makes the identity of Terafab's manufacturing partner unusually important. If TSMC takes a substantial role, Intel could still participate, but the project would no longer represent the same degree of validation for Intel's foundry ambitions.

As D.A. Davidson analyst Gil Luria told MarketWatch, the rise of Intel's stock has been supported in part by expectations surrounding Terafab. If Intel's involvement ultimately becomes limited to providing technology rather than securing a substantial portion of manufacturing, investors could reassess some of the premium attached to the stock.

TSMC May Not Mean Intel is Being Replaced

There is an important distinction between TSMC joining Terafab and TSMC replacing Intel. Musk has indicated separately that any TSMC production could be additional to Intel's role. MarketWatch reported that Musk acknowledged that chips supplied by TSMC would likely come in addition to those supplied by Intel.

That would make a dual-sourcing arrangement possible, a structure that is common in the semiconductor industry because large customers generally seek to reduce dependence on a single manufacturing partner. It would also make commercial sense for Musk's companies. Terafab's stated ambition is enormous, and Tesla, SpaceX and xAI have large requirements for processors and other advanced chips. Relying exclusively on a single manufacturing technology could create capacity and execution risks.

TSMC also brings a manufacturing record that Intel is still trying to match. TSMC Chairman and CEO C.C. Wei said in April that building a new fab typically takes two to three years, followed by another one to two years to ramp production. He also said advanced foundry competition ultimately depends on technology leadership, manufacturing execution and customer trust.

That assessment gives TSMC a potentially powerful role in Terafab without necessarily eliminating Intel.

Culpan has reported that one possible arrangement would see TSMC own and operate a new factory while Terafab commits capital, production volumes or both. Such a structure would resemble TSMC's existing joint-venture model in Japan and Germany, where local partners provide capital and demand while TSMC supplies technology and operates the facilities. These remain reported possibilities, not agreed terms.

The commercial structure will therefore matter as much as the headline of a TSMC partnership. If TSMC owns and operates a major Terafab facility while Intel provides a separate process or packaging capability, the effect on Intel would be very different from a scenario in which TSMC merely provides additional capacity alongside Intel.

A Reality Check for Intel's Rally

The market reaction also exposes how much expectation has already been embedded in Intel's valuation. The stock has gained more than 200% this year, meaning investors are now pricing in a successful turnaround in Intel's manufacturing business alongside improvements in its core operations.

Terafab became an important part of that narrative because it appeared to provide Intel with exactly what its foundry business needs most: a large external customer willing to commit to advanced manufacturing.

The TSMC talks complicate that thesis. They do not destroy it.

Intel could still secure meaningful Terafab volume, particularly if Musk's companies pursue a multi-foundry strategy. Intel also brings its own process technology and advanced packaging capabilities, areas that could give it a role even if TSMC operates part of the manufacturing footprint.

The bigger issue is execution. Intel's 14A process is crucial to the company's foundry comeback, and Terafab could have served as a high-profile demonstration that the technology is ready for large-scale commercial production. Investors will now have to wait for evidence that Intel can convert that opportunity into actual manufacturing commitments.