Intel turnaround sharpens with $16.1B quarter and AI-driven outlook

Intel delivered a second-quarter earnings beat and a third-quarter outlook that topped analyst estimates, strengthening the case that Chief Executive Lip-Bu Tan's turnaround is taking hold. Revenue rose 25% from a year earlier to $16.1 billion, above the $14.42 billion consensus compiled by LSEG. Non-GAAP earnings per share swung to a profit of $0.42 from a loss of $0.10 a year ago, more than double the $0.21 estimate. Shares gained about 4% in after-hours trading to around $104, after touching $113 immediately following the release.

The quarter marked the second straight period of outperformance under Tan, who took over in March 2025. Intel exceeded its own revenue guidance by $1.8 billion and its non-GAAP EPS forecast by $0.22. The company attributed the strength to AI-driven demand for its x86 CPUs, which customers are using for agentic computing tasks, and to higher average selling prices in its client computing group. The data center and AI segment was the standout, with revenue climbing $2.3 billion year over year and operating income surging $1.8 billion, driven by orders from hyperscalers and enterprise clients.

Investors are watching two main risks. Intel still has not announced any major external foundry customers, despite rumors linking Apple and others to its manufacturing services. Management said it expects deals to materialize as the strength of its process technology becomes clearer. The second risk is capital spending. Intel now expects capex to exceed $20 billion in 2026, up about $3 billion from prior plans, and to rise further in 2027 as it builds out its U.S. fab network. High capex has weighed on other chip stocks as markets question the return on investment. Intel argued the spending is justified by customer demand and the desire to reduce geopolitical reliance on Taiwan Semiconductor Manufacturing.

The foundry business, which makes Intel's own chips and those of external clients, showed progress. Revenue increased 31% year over year, and operating losses narrowed for the second straight quarter as yields and cycle times improved. Intel's most advanced manufacturing process, 14A, is scheduled to enter risk production on internal products in the second half of 2027, with a decision on high-volume production expected in 2028.

The third-quarter outlook reinforced the positive trajectory. Intel guided revenue between $15.8 billion and $16.8 billion, with a midpoint of $16.3 billion well above the $15.1 billion consensus. Non-GAAP gross margins are forecast at 42%, up two percentage points from a year ago and above the 40.5% consensus estimate. Non-GAAP EPS is expected at $0.38, compared with the $0.27 analyst consensus and the $0.23 Intel earned in the third quarter of 2025.

On the call, management pointed to the shifting ratio of CPUs to GPUs in AI server racks as a structural tailwind. During the early AI buildout, racks held roughly one CPU for every eight GPUs. Intel now puts the ratio near parity, at one-to-one, and expects it to tilt further toward CPUs as agentic workloads expand. The company declined to put a specific dollar figure on the addressable CPU market by 2030, after AMD pegged it at $220 billion at its investor day. Management said the trend supports sustained demand.

One area of caution is the PC market. Intel's client computing and physical AI group delivered strong results despite what management described as softening demand. AI PC revenues rose 26% sequentially, and edge computing now accounts for about 10% of segment revenue. Higher average selling prices helped offset unit softness, as Intel passed through some cost inflation to customers.

The data center CPU market could grow significantly if the CPU-to-GPU ratio continues to shift. Intel is securing long-term supply agreements with customers racing to lock in capacity, similar to what Micron and Sandisk have described. That order visibility supports the higher capex plan. It also means any demand pullback would leave Intel with expensive idle capacity.

Intel's Alpha Score stands at 35 out of 100, labeled Mixed, reflecting the execution risk around the turnaround and the heavy investment cycle. By contrast, Taiwan Semiconductor Manufacturing scores 65 (Moderate) and Advanced Micro Devices scores 54 (Mixed), both benefiting from the same AI demand wave while facing different competitive dynamics.

The next catalysts for the stock are foundry customer announcements, quarterly margin trends, and the pace of capex. Intel's $140 price target, maintained by several analysts, implies roughly 35% upside from the after-hours level. Reaching it will depend on Tan delivering operational consistency and at least one marquee foundry win before 14A enters risk production.