What They Do
Intel designs and manufactures semiconductors, primarily computer processors (CPUs) and data center chips that power PCs, servers, and AI workloads. The company also operates Intel Foundry, manufacturing chips for external customers, while serving enterprise customers, PC manufacturers, and cloud providers. They generate revenue through chip sales and foundry services, competing in the massive global semiconductor market.
Investment Thesis
**Process technology leadership returning** — Successfully launched Core Ultra Series 3 on advanced Intel 18A process (most advanced on U.S. soil) with yields improving 7-8% monthly and external foundry customers evaluating Intel 14A**AI and data center acceleration** — DCAI revenue grew 15% QoQ to $4.7B (fastest sequential growth this decade) while custom ASIC business exceeded $1B annualized run rate, targeting $100B TAM opportunity**Margin expansion trajectory** — Non-GAAP gross margins improved 70 bps YoY to 36.7% with Intel Products generating 27% operating margins, plus guidance for positive adjusted FCF in 2026 after achieving $3.1B positive in H2 2025Key Risks
**Severe supply constraints** — Company faces meaningful supply limitations that restrict ability to capture strong demand, with Q1 2026 guidance reflecting lower seasonal patterns due to these constraints**Foundry losses mounting** — Intel Foundry posted $2.5B operating loss while external foundry revenue remains modest at $222M, raising questions about the division's path to profitabilityGrowth Story
Revenue is expected to stabilize around $54-58B through 2027 after supply constraints ease, with management expecting improvements beginning Q2 2026. The company is targeting massive growth opportunities in AI/custom ASIC ($100B TAM) and external foundry services, while benefiting from a recovering PC market with 290M+ unit TAM. Current growth is supply-constrained rather than demand-constrained, suggesting upside potential once production capacity expands.
Profitability Profile
Intel is on a clear margin expansion path with non-GAAP gross margins improving to 37.9% in Q4 2025, while aggressively cutting OpEx by 15% to $16.5B. The company achieved positive $2.2B adjusted FCF in Q4 and expects full-year 2026 positive adjusted FCF after burning $1.6B in 2025. Intel Products division demonstrates strong 27% operating margins, while the foundry business remains the primary drag on overall profitability.
Competitive Position
Intel faces intense competition from TSMC in foundry services and AMD/NVIDIA in processors, but is differentiating through advanced U.S.-based manufacturing and specialized technologies like EMIB-T advanced packaging. The company's process technology improvements and geographical advantages (especially for U.S. customers) provide competitive moats, while their custom ASIC capabilities and AI PC positioning offer new battlegrounds against competitors.
Recent Momentum
Intel delivered its fifth consecutive quarter of beating guidance with Q4 revenue of $13.7B and EPS beat of $0.07, driven by strong data center growth and successful product launches. The Core Ultra Series 3 launch exceeded expectations with 3 SKUs vs. planned 1, powering over 200 notebook designs. However, supply constraints continue to limit the company's ability to fully capitalize on robust demand across multiple segments.
What Wall Street Thinks
Analysts are cautiously optimistic about Intel's turnaround story, with 2026-2027 EPS estimates showing significant acceleration from $0.50 to $0.96. The consistent guidance beats and margin expansion have improved sentiment, though concerns remain about the foundry business losses and competitive positioning against TSMC and AMD. The supply constraint narrative is viewed as potentially positive if it reflects genuine demand strength rather than execution issues.
The Bottom Line
Intel is executing a complex turnaround centered on reclaiming process technology leadership and building a foundry business, with early signs of success in margins and product competitiveness, but investors need to see supply constraints resolve and foundry losses narrow to validate the full transformation thesis.
