Intel Corporation (INTC) experienced a 2.8% decline in its stock price Tuesday morning, settling at $125.84. This pullback comes on the heels of a sharp rally driven by optimism surrounding its foundry business, AI server demand, and speculation about new customer wins. The retreat highlights the market's reassessment of the chipmaker's turnaround narrative amid valuation and macroeconomic pressures.
Foundry Hype Meets Reality
The recent surge was sparked by reports that SK hynix is testing Intel's EMIB (Embedded Multi-die Interconnect Bridge) technology for advanced 2.5D packaging. This process is crucial for linking high-bandwidth memory with logic chips in AI hardware. With TSMC's CoWoS packaging capacity constrained, Intel's alternative packaging solution has garnered interest. However, neither Intel nor SK hynix have officially confirmed the collaboration. Additionally, a Reuters report citing the Wall Street Journal suggested Intel had reached an initial agreement to manufacture chips for Apple (AAPL), sending shares up 15% on Friday. Both companies have declined to comment.
Earnings and Guidance
Intel's first-quarter revenue came in at $13.6 billion, a 7% increase year-over-year, with non-GAAP earnings per share of $0.29. The company forecasts second-quarter revenue between $13.8 billion and $14.8 billion, with non-GAAP EPS of $0.20. CEO Lip-Bu Tan emphasized the role of CPUs in AI inference, stating, "The CPU now serves as the orchestration layer and critical control plane for the entire AI stack."
Valuation and Macro Pressure
The stock's valuation remains a concern. After April's earnings rally, Intel traded at roughly 90 times forward earnings, significantly higher than AMD's 37 times and Nvidia's 22 times. April's CPI data showed a 3.8% year-over-year increase, with core CPI at 2.8%, reducing the likelihood of Federal Reserve rate cuts. Polymarket participants place a 62% probability on zero rate cuts in 2026, a headwind for richly valued growth stocks.
Foundry Losses and PC Weakness
Intel Foundry posted a $2.4 billion loss in the first quarter, with external foundry revenue of only $174 million. Deutsche Bank maintained a Hold rating, while KeyBanc highlighted a 27% decline in April notebook shipments, signaling weakness in the PC market. Analysts from TECHnalysis Research noted that a meaningful contribution from the foundry business is not expected until 2027.
Market Context
Peer performance diverged, with AMD slipping while Nvidia (NVDA) gained, reflecting the fragmented nature of the AI trade. Intel's upside depends on AI budgets shifting toward CPUs and packaging alternatives, while Nvidia maintains its lead in accelerators and TSMC remains the manufacturing benchmark. Options markets had priced in an 8.5% swing for the week, indicating the stock's sensitivity to news rather than solid quarterly results.
Outlook
Intel's next moves hinge on confirmed customer revenue, progress on 18A yields, and the trajectory of PC demand. Until then, the debate between bulls and bears remains unresolved, with the stock's lofty multiple demanding rapid execution on foundry and AI CPU growth.
