Does Intel's New $3 Billion Pentagon Deal Make the Stock a Buy?

Semiconductor stocks have been some of the biggest winners from the red-hot artificial intelligence (AI) race. Among higher-profile chip companies is Intel (NASDAQ: INTC), which recently won a deal worth up to $3 billion with the U.S. Department of Defense (DOD).

Let's dig into this deal and how it's playing a role in Intel's growth right now. Moreover, after a thorough analysis of the stock, I'll provide my views on whether now is a good time to buy Intel shares right now.

I'm beginning to notice a pattern with Intel

President Joe Biden has been busy over the last four years. In my opinion, one often overlooked piece of legislation from the Biden-Harris administration is the CHIPS and Science Act. One of the biggest initiatives from the CHIPS Act is to bring more manufacturing and research jobs in the semiconductor space to the U.S.

Back in September, Intel was awarded a deal worth up to $3 billion as part of the CHIPS Act's Secure Enclave Program. According to the DOD's website, the Secure Enclave project aims to "support the manufacturing of microelectronics and ensure access to a domestic supply chain of advanced semiconductors for national security."

This is not the first time Intel has been a beneficiary under the CHIPS Act. Back in March, Intel and the Department of Commerce agreed to preliminary terms of an $8.5 billion funding aimed at helping the company build out additional manufacturing facilities in Arizona, Ohio, Oregon, and New Mexico.

While these deals are an important step in helping bring more chip investment to the U.S. from overseas, I do see some drawbacks to Intel's government business.

Drawbacks with public sector business

Unpredictability is a risk with any type of deal. However, I see public sector business as far less predictable compared to the private sector. Government initiatives are sensitive to budget cuts, and oftentimes priorities change dramatically under different political administrations.

Despite their unpredictability, major government contracts can wind up being lucrative sources of steady business. However, focusing on renewing steady public sector deals can come with the opportunity cost of investing in new product development outside of these government deals. For these reasons, businesses that rely heavily on government opportunities run the risk of being seen as less innovative compared to peers.

Lastly, it's natural for public sector deals to receive higher levels of scrutiny compared to opportunities in the private sector. Should a company fail to meet its deliverables or expected requirements, investors may start to view a company more negatively than is warranted, purely due to their knowledge of setbacks in higher-profile, reported deals.