Intel plunges on a major guidance miss. What went wrong, how to proceed
Intel delivered a solid quarter on Thursday, but its guidance underscored how heavily it still depends on the struggling PC market, sending shares sharply lower after hours. We’re not joining the sell-off just yet. Revenue in the third quarter increased 21% year over year to $16.513 billion, edging out the LSEG-compiled consensus estimate of $16.496 billion. Non-GAAP earnings per share (EPS) more than doubled to 52 cents, beating the LSEG estimate of 40 cents. INTC YTD mountain Intel 1-year return Bottom line Despite data center demand and improvements at its foundry still pointing to a solid long-term outlook, analysts will need to revise estimates downward for several quarters, as weakness in the consumer electronics market will persist well into 2027. Why not bail on the stock? This is the reset. Further downside is certainly possible, but selling now won’t erase the losses we’ve taken. Looking ahead to next year, we see the data center business continuing to grow as agentic AI workloads drive demand for CPUs, foundry operations continue to improve, and the PC market bottoms out. As a result, the risk/reward profile dictates we stick with it, even if the outlook suggests this probably isn’t the best use case for new money into year-end. We’ll be more optimistic once the downward estimate revisions come through, the stock finds its bottom, and most importantly, when we see evidence that the inventory flush currently underway in the PC market is coming to an end. There is no doubt that upside is capped for the near future. As a result, our rating is currently under review, and we are slashing our price target to $100. Commentary Memory prices are through the roof. Data center builders are all too happy to pay up and can raise capital by issuing debt or selling equity. Consumers can’t, putting immense pressure on the PC market. Consumer demand isn’t driving the surge in memory prices. The issue is that PC makers and the data center cohort rely on the same manufacturing capacity, and there simply isn’t enough of it to meet demand from both. For example, Apple has raised prices on some Macs and iPads to offset higher memory costs. Its devices don’t use the same high-bandwidth memory sought by the likes of Amazon, Microsoft, Alphabet, and Meta Platforms, but Apple is competing with those data center players for the limited capacity at memory supplier fabs (think Samsung, Micron, and SK Hynix). “The industry continues to navigate one of the most significant supply shortages in history driven by the unprecedented demand for superintelligence,” CEO Lip-Bu Tan said on the conference call. While Intel has done a lot to expand its data center business — and benefited immensely from the need for its CPUs to power agentic AI workloads — it remains heavily exposed to the PC market. Sales in the unit fell 5% year-over-year, but it still accounts for more than half of the revenue of Intel’s products group (CCPG + DCAI) and about 43% of Intel Products’ operating income (see chart below). That PC exposure is weighing on Intel’s outlook for the rest of the year, even as it reported its strongest DCAI (data center and AI) segment growth in 15 years. “In recent weeks, our customers began signaling a PC slowdown based on the memory prices and availability,” Tan said. Still, the quarterly results were largely better than expected. Sales outpaced expectations, driven by strength in the Data Center AI and Foundry segments, partially offset by a miss in the Client Computing and Physical AI Group, which has exposure to the PC market. Adjusted gross margin expansion met expectations, contributing to a strong adjusted operating income result and setting the stage for the earnings beat. Cash flow was also strong, with Intel reporting an inflow, whereas the Street expected an outflow. CEO Tan said demand for 2027 is “significant, especially in CPU-dense rack-scale infrastructure.” However, if Intel is going to capitalize on the opportunity, it needs to ramp up its manufacturing capacity. According to Tan, there are three key hurdles to overcome: improve efficiency (yields and cycle times); solve the industry-wide shortage of advanced organic substrates needed for packaging, which is also hindering output ramp-up; and recover from an extended shutdown at one of the company’s factories in Israel, which will impact server CPU shipments in the current quarter and possibly beyond. On the call, CFO David Zinsner estimated a $300 million impact in the fourth quarter, which is “likely to be similar in the first quarter.” Why we own it Intel is benefiting from the AI boom in multiple ways: Its data center CPUs are in demand to support AI agent-driven tasks, while its foundry business allows it to manufacture its own processors as well as chips designed by other companies. Competitors : Taiwan Semiconductor , AMD , Arm Holdings Most recent buy : Aug. 10, 2026 Initiated : June 3, 2026 “Purpose-built silicon remains our fastest-growing business segment, tripling over the last three years and poised to triple again over the next few years,” Tan added. “We see further growth opportunity with both existing and new potential customers, including AI labs, and expanding our IP portfolio to meet the needs of a wider array of customers.” Intel estimates that agentic AI workloads could expand the total addressable market for server CPUs fivefold over the next five years, from $40 billion today to as much as $200 billion. Intel’s foundry business continued to show improvement, with revenue increasing 16% sequentially. Most of the output is for Intel’s own use, so it doesn’t count toward reported revenue. External revenue rose $118 million from the prior quarter to $411 million, though the increase was primarily due to a non-recurring customer program. Analysts, including us, tend to discount non-recurring revenue when assessing a business’s health. The unit remains unprofitable, but its operating margin was roughly half as bad as a year ago. (Jim Cramer’s Charitable Trust is long INTC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
