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Intel’s central processing units have become one of the hottest businesses on Wall Street this year, and artificial-intelligence demand for those chips could power the company to an earnings beat on Thursday.
Whether CPU momentum is enough to get Intel’s stock back on track remains the bigger question, however. While Intel shares have surged 186% so far this year, they’ve struggled more recently, falling 25% from their closing high achieved on June 22.
CPUs are essential for running inference workloads demanded by agentic AI, but there are various wild cards to consider. For one, Intel’s upside partly depends on whether it has enough supply to meet that fervent demand. Analysts are also intrigued by how much it can raise prices on these chips.
Intel’s data-center and AI business, which includes its server CPUs, is expected to see June-quarter revenue grow 37.8% from the previous year to reach $5.4 billion, according to the FactSet analyst consensus.
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Wedbush analyst Matt Bryson said rising average sales prices for CPUs will be the likely driver of that growth. Intel said on its prior earnings call that it had improved CPU output at its factories after finding itself in an undersupply earlier this year, but noted that demand is continuing to outstrip supply.
Server CPUs are the buzziest part of Intel’s business this year, but they’re not the only element of the investment narrative around the stock. Analysts say the prospects for personal-computer CPUs look more mixed, and they’re awaiting more information about the company’s foundry business.
The intense demand for server CPUs and rising memory-chip prices have cut into both PC production and shipments. Intel is continuing to put its limited supply of front-end wafers toward server chips rather than PC chips, Susquehanna analyst Christopher Rolland said in a note to clients.
Rolland further noted that PC builds in the second half of the year will likely “be significantly weaker” compared to previous years due to high memory costs. The analyst generally expects Intel’s client-computing group to deliver “below-seasonal” results during the second half of the year, which is “the traditionally strongest period for this market.”
The company’s client-computing group, which includes PC CPUs, is expected to see second-quarter revenue of $8 billion, which would represent year-over-year growth of just 1.7%, according to FactSet.
While whatever Intel guides for its client-computing business “may potentially leave something to be desired,” Bernstein analyst Stacy Rasgon said that the company has a chance to offset that hypothetical disappointment by showcasing strength in server chips and offering commentary on improvements in its manufacturing capabilities.
Intel said Tuesday that cybersecurity company Fortinet will use its foundry to design, package and manufacture its security chips.
In June, Intel said that its 18A-P variant node is in risk production, meaning the chip-manufacturing process has matured and can begin initial production. In this phase, the 18A-P process node is tested across chip cores ahead of general production.
Intel’s Embedded Multi-die Interconnect Bridge advanced chip-packaging technology has also garnered interest among chip designers, and Google has been touted as a potential customer for its tensor processing units.
RBC Capital Markets analyst Srini Pajjuri said in a note that he expects positive updates on Intel’s foundry through the second half of the year — especially after it announced in April that it will work with Elon Musk’s Terafab chip-making project.
However, investments into the foundry business could be a weight on Intel’s free cash flow and margins, Rasgon added.
Intel’s guidance for a second-quarter gross margin of 39% represents a decline from the previous quarter, though the company attributed that performance to one-time “inventory benefits” from selling partially compromised chips. Intel is still expected to dramatically improve margins from the 29.7% level it reported for the same quarter a year ago.
Wedbush’s Bryson said that higher chip prices and Intel’s commentary on yield improvements of various manufacturing nodes signal its margins could be well above Wall Street’s estimates. Chip yields refer to the amount of usable chips that come from a single wafer.
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Overall, Intel is expected to report June-quarter revenue of $14.4 billion, according to the FactSet consensus, which also calls for adjusted earnings of 22 cents a share.
