Investors are keenly awaiting Intel’s earnings report after Thursday’s market close, with a laser focus on two critical areas: the trajectory of its AI server CPU growth and the tangible progress of its foundry business. This report arrives at a pivotal juncture for optimistic stakeholders, particularly those within the CNBC Investing Club. Following a robust rally through the spring and into late June, the stock has experienced a notable pullback, shedding over 27% from its all-time high closing price near $141 per share on June 22. This decline, however, appears to be less a reflection of any fundamental erosion within Intel itself and more a consequence of a broader sector-wide sell-off. Investors are now recalibrating their outlook on the future spending capacity of hyperscalers – Intel’s core customer base – in their aggressive build-outs for artificial intelligence. As one of the year’s best performers, having surged 280% by its June peak, Intel was naturally susceptible to profit-taking.
So, what catalyst can Intel leverage to reverse this downward trend and reignite investor confidence?
Firstly, the market demands concrete evidence of sustained robust demand for Intel’s central processing units (CPUs) and the company’s ability to meet this demand effectively. CPUs, often dubbed the “brains” of any computing system, are indispensable for managing the complex instructions and tasks that power modern technology. Their significance has escalated dramatically in the artificial intelligence landscape, particularly as the focus shifts from AI model training to inference – the critical stage where AI models process user requests and execute tasks. The burgeoning sophistication of AI systems, now capable of autonomously executing multi-step operations, is a primary driver of this increased CPU demand. This evolution has unexpectedly placed Intel’s processors in a spotlight previously dominated by specialized AI accelerators, most notably Nvidia’s graphics processing units (GPUs) and Google’s proprietary tensor processing units (TPUs).
However, this burgeoning opportunity has not been without its challenges, manifesting as supply constraints. In the first quarter, Intel reported revenue of $13.6 billion, exceeding the midpoint of its guidance by $1.4 billion. Yet, during the post-earnings call in April, Intel’s CFO indicated that revenue would have been “meaningfully higher” had demand not outpaced available supply. The crucial question investors will be seeking answers to on Thursday evening is whether Intel has successfully scaled its production capabilities.
This is precisely where Intel’s nascent foundry business comes into play. Beyond bolstering supply for its own processors, the foundry segment represents a significant new revenue stream, enabling Intel to manufacture chips designed by third-party companies. This dual capability uniquely positions Intel against rivals like Advanced Micro Devices and Nvidia, as well as tech giants such as Amazon and Alphabet, who develop custom silicon. These competitors are largely dependent on third-party foundries, with Taiwan Semiconductor Manufacturing Company (TSMC) being the dominant player, to bring their chip designs to fruition. Intel’s distinction lies in its continued operation of its own chip manufacturing facilities, the industry’s “foundries.”
“Intel, as of right now, has the most significant cleanroom space expansion opportunity before it,” stated Ben Bajarin, CEO and principal analyst at Creative Strategies, a prominent tech research firm. Bajarin anticipates Intel will increase its capital expenditures (capex) dedicated to expanding its fabrication plants, a portion of which will be allocated to enhancing its cleanroom facilities – the ultra-controlled environments essential for advanced chip manufacturing. The strategic objective is clear: to establish Intel as a reliable alternative chip source for companies that have historically relied almost exclusively on TSMC, the industry’s undisputed leader. “They can add capacity in their foundries, largely here in the United States, some in Ireland as well, faster than [TSMC] can,” Bajarin elaborated, highlighting TSMC’s current full capacity which leaves many customers searching for alternative manufacturing solutions, a vacuum Intel is well-positioned to fill.
Intel has recently made concrete steps to bolster its manufacturing capacity. Just last week, the company announced plans for a substantial $5.7 billion investment in its Leixlip, Ireland facility, aimed at increasing production of its Xeon-brand server CPUs and other key products. While this investment primarily targets meeting the demand for Intel’s proprietary chips, it concurrently expands the company’s manufacturing footprint, a crucial step in supporting its long-term foundry ambitions. Furthermore, Intel’s foundry division secured a significant deal with cybersecurity firm Fortinet this past Tuesday, agreeing to produce the latter’s next-generation security chips. This marks a notable first for the foundry division under Intel CEO Lip-Bu Tan, who assumed leadership in March 2025. The foundry unit has also recently landed manufacturing and packaging opportunities with prominent players like Apple, MediaTek, and Elon Musk’s ambitious Terafab project. While the specifics of the Apple-Intel engagement remain unconfirmed by either party, reports suggest a potential agreement between the two American tech giants. It’s worth noting that the U.S. government became a significant shareholder in Intel last year.
The supply constraints, according to RBC Capital analyst Srini Pajjuri, are also working in Intel’s favor on other fronts. With demand consistently outstripping supply, Pajjuri believes Intel has the strategic advantage of prioritizing higher-value server CPUs. This allows for an optimized product mix and grants the company enhanced pricing power, given the limited options available to its customers. This pricing leverage is a key mechanism for navigating supply constraints while still meeting – and potentially exceeding – Wall Street’s elevated expectations. The ability to firm up pricing, coupled with a gradual increase in supply to narrow the demand-supply imbalance (without fully closing it), presents a clear pathway to delivering upside surprises.
A lingering question, however, revolves around Intel’s yields – the percentage of functional chips produced per batch – and whether they can sufficiently improve to rival Taiwan Semiconductor’s output. Yet, Pajjuri argues that direct parity with TSMC isn’t an absolute prerequisite for success. “Intel doesn’t have to be on par with TSMC to make progress,” he contended. “As long as they get close to where TSMC is, I think they have a lot of opportunity.”
The analyst expresses optimism regarding Intel’s strategic direction, crediting management for effectively right-sizing the business, strengthening the balance sheet, and forging a vital strategic partnership with Nvidia. Nonetheless, Pajjuri remains keen to see demonstrable progress in Intel’s gross margin expansion and the continued growth of its foundry business, which underpins his current hold-equivalent rating on the stock. Reflecting the broader analyst sentiment, approximately 58% of analysts covering Intel currently hold a “hold” rating, with 34% recommending a “buy,” according to FactSet data.
Street consensus, as per LSEG estimates, projects Intel’s second-quarter revenue to rise 12% year-over-year to $14.42 billion. Earnings per share (EPS) are anticipated to be 21 cents, a significant improvement from a year-ago loss of 10 cents.
**The Bottom Line:**
Our conviction in Intel’s long-term prospects remains strong, reflected in our buy-equivalent rating of 1 on the stock. Since initiating our position in early June, we have strategically added to our holdings five times. As Jim Cramer reiterated on CNBC this Wednesday, “Intel is my favorite chip stock.” He emphasized that the transformative work undertaken by Lip-Bu Tan at Intel has been nothing short of miraculous. During Thursday’s Morning Meeting for Club members, Cramer specifically highlighted the foundry business, which he believes is pivotal to “saving American chips because [Tan] knows how to build a foundry.” He also lauded Intel’s leading position in CPUs: “This is the number one CPU company in the world. Number one in the world. I like that.”
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