Intel Corporation (NASDAQ:INTC) has seen its stock price skyrocket over 160% so far in 2026, fueled by strong demand in its Data Center and AI segments and optimism around its advanced manufacturing technologies. However, as the company prepares to report second-quarter earnings on July 23, investors are increasingly focused on the profitability of its foundry business, which continues to weigh on overall margins.
Shares of Intel closed at $95.04 on Friday, down 2.0%, amid a broader sell-off in chip stocks that capped the worst week for the sector in over a year. The PHLX Semiconductor Index (SOX) finished Friday down 20.2% from its record high on June 22, entering bear market territory. Despite the recent weakness, the SOX remains up nearly 65% for the year, while the S&P 500 has gained roughly 9%.
Financial Metrics Show Growing Pains
Early estimates based on Intel's first-quarter results and the midpoint of its second-quarter outlook paint a mixed picture. Revenue is projected to rise to $14.300 billion in Q2, a 5.3% increase from $13.577 billion in Q1. However, non-GAAP gross margin is expected to decline to 39.0% from 41.0%, and non-GAAP diluted EPS is forecast to drop 31.0% to $0.20 from $0.29.
The foundry segment remains a significant drag. Intel Foundry reported an operating loss of $2.437 billion in the first quarter, up about 5% from a year ago, while revenue for the segment grew 16% year-over-year. It is important to note that these revenues include internal sales among Intel units and do not solely reflect external foundry demand.
Strong Demand in Data Center and AI
Offsetting the foundry losses, Intel's Data Center and AI segment revenue climbed 22% to $5.1 billion in the first quarter, while overall Intel Products revenue rose 9%. Intel CFO David Zinsner described "unprecedented demand for silicon" in April, adding that the company is optimizing its factory network to increase supply.
"It's like the market has chip fatigue," said Ryan Detrick, chief market strategist at Carson Group, noting that chip stocks have declined in three of the last four weeks.
Technical Advances and Capital Expenditure
On the technology front, ASML Holding (NASDAQ:ASML) reported that Intel is delivering select Panther Lake processors produced using High-NA EUV technology on its Intel 18A node. Yields on select layers were consistent with those achieved on ASML's established NXE platform, providing a boost to Intel's manufacturing credentials.
However, the cost of boosting manufacturing remains high. Intel announced a €5 billion expansion in Ireland last week, with most of the investment scheduled before the end of 2027. The project accounts for roughly 30% of Intel's anticipated $17 billion capital expenditure for 2026.
Earnings Preview and Key Risks
Intel will release its second-quarter results after Thursday's close. Investors are focused on adjusted gross margin, foundry losses, and updates on 18A production. A revenue beat by itself may not be enough to sustain the rally, given the profitability challenges.
Risks to the upside include an improved server portfolio or increased factory utilization that could accelerate profit above guidance. On the downside, weaker PC demand, increased expenditure, or slower-than-anticipated external foundry momentum could weigh on the stock.
Markets resume trading on Monday. Intel's July 23 earnings will indicate whether its projected 2026 growth is based on present profits or the upcoming factory cost structure.
