Intel (INTC 1.44%) stock has been testing the patience of investors for years. Over the last decade, the stock has fallen 33% as nearly all of its peers, including AMD, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing Co. (TSM -0.42%) have skyrocketed. No other blue chip stock has underperformed its sector as badly as Intel.

Despite those woes, there's always been a bull case for the chip stock. It has long been a leader in the PC market. It's the largest integrated device manufacturer (IDM) in the U.S., meaning it both designs and manufactures chips, and the AI boom will likely be a rising tide that lifts all boats in the semiconductor sector.

Therefore, it was notable when Intel stock soared last week. Those gains came even as its chief of artificial intelligence (AI) and data center jumped ship to work at Nokia.

The stock's catalyst gains came on rumors that TSMC would form some kind of joint venture with Intel to help it manufacture advanced chips in the U.S.

Image source: Getty Images.

The rumor mill is spinning fast

The TSMC-Intel rumors seem to have come from multiple sources, snowballing in the media and on online platforms after Vice President J.D. Vance said at an AI conference in Europe that the Trump administration will "ensure that the most powerful AI systems are built in the U.S. with American designed and manufactured chips." Intel has thus far been the biggest beneficiary of the CHIPS Act and the broader plan to build up chip manufacturing in the U.S., so it's seen as a winner on a stronger push in that direction.

That was followed by a report from Baird that said there are discussions in the Asia semiconductor supply chain that the U.S. government is aiming to send TSMC engineers to Intel's advanced chip fab. And late last week, several media outlets reported that Intel and TSMC were in talks with the Trump administration for some kind of deal that involves TSMC taking control of Intel's foundry operations, as well as a majority stake in the foundry business.

Will an Intel-TSMC deal happen?

The news represents something of an about-face for TSMC. On the October earnings call, TSMC CEO C.C. Wei was asked directly about acquiring one of Intel's fabs, and he answered firmly:

Well, that's a lot of questions. Let me answer one of the easiest ones. Are we interested to acquire one of (Intel's) IDMs so far? The answer is no. OK. No. Not at all.

That doesn't leave much room for interpretation.

The change of heart may be due to the Trump administration's involvement, but it could also be because the terms of any deal are attractive enough to entice TSMC. After all, the Taiwanese chip-manufacturing titan seems to be holding all the cards.

Intel bulls don't seem to be considering the deal from TSMC's perspective. TSMC dominates the market for chip manufacturing and advanced chips, and Intel even outsourced some of its advanced chip production to TSMC. It's also growing quickly and is highly profitable, unlike Intel. TSMC doesn't need a rescue; Intel does.

Keep in mind the state of Intel's business, as well. The company announced a massive restructuring back in August and said it would lay off at least 15% of its workforce. In December, the board of directors pushed out CEO Pat Gelsinger and promoted two top executives to be interim co-CEOs. Last week, its AI and data center chief also left.

Even if Intel is able to unwind the albatross that has become its foundry business, the company still faces challenges in its core chip-design business.

Who's the winner here?

As investors awaited the fate of Intel's foundry business, other problems mounted. The company's revenue is declining and margins are compressing. Intel is losing market share to AMD, and its AI push is falling short.

Buying Intel stock because of the TSMC deal seems to be missing the point. If any company is going to be a winner here, it's likely to be TSMC. Investors still don't know the terms of the deal or whether it will go through, but Taiwan Semi is in the much better bargaining position.

Intel, on the other hand, still faces a number of challenges with its leadership vacancies, revenue declines, and market-share losses. For the first quarter, the company guided to a revenue decline and for just breakeven on the bottom line, after adjustments.

Pawning off the foundry business to TSMC may be making the best of a bad situation for Intel, but it doesn't make the stock a buy. If you're looking to capitalize on the possible deal, TSMC is the much better choice.