Intel ((INTC Quick QuoteINTC - Free Report) ) reported earnings yesterday afternoon, and while results beat expectations on both the top and bottom line, the headline numbers mask the deeper debate surrounding the stock. Earnings rose 15% year over year and revenue declined 4%, though Q1 remains a seasonally weak period for Intel’s businesses.

Despite the earnings beat, shares are down nearly 17% on the day. However, even after today’s sharp selloff, the stock is still up more than 20% in just the first three weeks of the year, underscoring how polarized sentiment has become around the stock.

Quarterly earnings are not the real story though. The investment case for Intel now hinges almost entirely on its ability to reinvent itself as a competitive, high-end foundry operator, that can compete with the likes of Taiwan Semiconductor ((TSM Quick QuoteTSM - Free Report) ).

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Can Intel Run Leading Edge Fabs?

Intel’s story is about far more than margins or near-term profitability. Semiconductor manufacturing capacity, especially at the leading edge, has become a matter of national security. The United States is no longer comfortable relying almost exclusively on overseas production for its most advanced chips, and Intel sits at the center of that strategic push.

With explicit backing from the US government and incentives tied to domestic chip production, Intel is attempting something extraordinarily difficult: operating cutting-edge fabs on US soil that can compete withTaiwan Semiconductor, the undisputed leader in advanced semiconductor manufacturing.

If Intel proves that it can manufacture high-performance chips at scale, it becomes a viable alternative supplier for customers such as Nvidia, Apple, and AMD—companies that currently rely heavily on TSMC for their most advanced designs. If Intel can secure those customers, it would complete the reversal from a once-great but recently struggling technology company into a renewed global leader.

Why 18A is Key for Intel’s Stock

At the center of Intel’s ambitions is its 18A process node. These production methods are extraordinarily capital intensive and technologically complex, which explains why Intel’s earnings remain heavily suppressed. Massive upfront investments are flowing into the foundry business, depressing near-term profitability but laying the groundwork for potential operating leverage later.

During the earnings call, CEO Lip-Bu Tan emphasized that yields on 18A are improving, which is key. In semiconductor manufacturing, yield, the percentage of functional chips per wafer often determines whether a process node is commercially viable. Even small improvements can dramatically change cost structures and customer willingness to commit volume.

Demand for advanced chips remains extremely strong thanks to the AI boom, and supply is still constrained across the industry. If Intel can meet its yield and reliability targets with 18A, it should be able to secure meaningful customer commitments. That path will almost certainly be volatile, but the payoff could be significant. Recent supply issues this quarter highlight how tight the market remains, and how valuable incremental capacity can become.

The Valuation Spread Between Intel Shares and TSMC

The valuation disparity between Intel and TSMC reflects starkly different risks. TSMC trades around 23.7x forward earnings and exerts near-monopoly control over the leading-edge AI chip market. Its dominance is deserved, and its execution track record remains unmatched.

Intel, by contrast, trades at roughly 93x forward earnings. On the surface, that multiple looks extreme. In reality, it reflects temporarily depressed earnings caused by heavy foundry investments. If Intel’s foundry strategy succeeds, earnings should inflect meaningfully higher over the next several years, rapidly compressing that multiple.

There is also a geopolitical component embedded in valuations. TSMC faces a persistent geographic risk discount due to its proximity to China. Intel, meanwhile, benefits from a strategic premium as the most credible US-based competitor capable of reshaping the global chip fabrication landscape.

Should Investors Buy Shares in Intel or TSMC?

TSMC remains one of the highest quality companies in the world and trades at a valuation that largely reflects its dominance and execution. For investors seeking ownership in a key player of the world’s technological infrastructure, it remains difficult to argue against owning it, though investors must acknowledge the geopolitical tail risk.

Intel is a different proposition. The company is attempting one of the most ambitious turnarounds in modern tech history. Expectations are exceptionally high, execution risk is substantial, and the path forward will likely remain volatile. Yet the payoff profile is asymmetric. TSMC currently trades at roughly a $1.7 trillion market capitalization, while Intel is valued at just a fraction of that at $260 billion. If Intel succeeds in executing its foundry strategy, it would not only compress that gap but also materially alter the balance of power in global semiconductor manufacturing.

As AI acceleration and advanced chip production increasingly intersect with national security priorities, Intel’s US-based strategy carries strategic importance well beyond traditional earnings metrics. With government backing, structural demand, and improving technical milestones, Intel has a credible path to competing with TSMC. That combination makes INTC a potentially positively skewed opportunity for investors willing to tolerate uncertainty in exchange for long-term optionality.