Intel shares fell about 2% on Monday after Elon Musk confirmed talks about TSMC joining Terafab, the $16.8 billion Texas chip venture where Intel's 14A is the only named process technology. TSMC's Taiwan-listed shares closed up 3% on the same day.

The rest of the chip group barely moved. AMD slipped less than 1%; Nvidia edged up. This story is all about Intel — and about a stock that has run more than 200% over the past year.

What exactly happened?

Terafab is a joint venture between Tesla and SpaceX to make chips for Musk's companies in Grimes County, Texas. Its key parameters:

• $16.8 billion committed to the first phase, up to $119 billion across all phases
• Output reserved for Tesla, SpaceX and xAI
• Intel joined in April; its next-generation 14A node is the facility's only named process

On Friday, the Culpium newsletter reported that TSMC is exploring ways to help Terafab run its planned Texas factories. The most likely setup would reportedly have TSMC own and operate a new facility, with Terafab as an anchor customer.

On Sunday, Musk confirmed the talks on X: "Just discussions, but something may come of it."

Why does Terafab matter so much to Intel?

Intel's foundry business needs big outside customers to prove it can compete with TSMC. Those customers are scarce. In the second quarter, outside customers brought the foundry just $293 million in revenue. The unit booked $5.8 billion in total — nearly all of it from Intel's own products — and still lost $2.1 billion.

If the world's biggest contract chipmaker shares Terafab, Intel's showcase loses much of its exclusivity. Barron's called the development a "setback" for Intel's foundry comeback.

The trouble is what investors are paying for that story. By TIKR's numbers, Intel traded at about 71 times forward earnings on Oct. 2 — above its three-year average of 66 times, though well below last October's peak of 173 times. In August 2024 the multiple bottomed near 19 times.

D.A. Davidson's Gil Luria framed the valuation gap on the Prof G Markets podcast on Sept. 29: "AMD is trading at 40 times, Intel at 60 times, optical companies at 30, 40 times." His point: the market doubts the AI cycle can last for giants like Nvidia, but believes it can for Intel.

Analyst consensus, compiled by TIKR, expects Intel revenue to climb to $82.6 billion by 2028 after three flat years — roughly 56% growth. Terafab's factories are still on paper, so the news is unlikely to move those estimates. The risk sits in the multiple: a marquee US customer is a big part of what justifies paying 71 times earnings.

On Mad Money on Sept. 28, Jim Cramer said CEO Lip-Bu Tan has turned Intel "from a has-been into a force to be reckoned with." The core business offered no support Monday either: Susquehanna said Intel likely kept losing CPU share to AMD in both laptops and desktops in the third quarter.

What comes next?

Nothing is signed. Musk called the contact "just discussions," and the reported structure has TSMC building its own facility — leaving room for Intel to keep its role at Terafab.

Still, at about 71 times forward earnings, Intel's price assumes foundry wins like Terafab outright, and a TSMC role dims that assumption. Watch for two signals: whether TSMC signs a formal deal, and the arrival of Intel's 14A design kit, due in October. Either will show how big the hit — or the opportunity — really is.