Intel Corporation (NASDAQ:INTC) shares edged up 1.4% to $104.55 on Tuesday, yet the stock remained 4.8% below Friday's close, trailing the broader chip sector rebound. The muted gain masked investor unease over the company's capital spending plans and the financial performance of its foundry business.
The immediate focus is Intel's €5 billion ($5.7 billion) expansion at its Leixlip campus in Ireland, announced Monday. The project will upgrade existing fabs, add equipment, and utilize available cleanroom space rather than build a new facility. Management expects most of the investment by the end of 2027, describing it as about 30% of Intel's planned $17 billion in capital expenditure for 2026.
The spending comes amid a supply squeeze. First-quarter Data Center and AI revenue rose 22% to $5.1 billion, with average server selling prices up 27% even as unit volume fell 5%. Intel said demand exceeded available supply and that constraints could last through 2026. Chief Financial Officer David Zinsner noted the company is focused on maximizing its factory network to improve supply.
However, the market is separating Intel's manufacturing burden from the broader semiconductor rebound. Over the past two sessions, Intel's loss was about 3.8 percentage points deeper than Advanced Micro Devices (NASDAQ:AMD) and three points worse than Nvidia (NASDAQ:NVDA). Analysts at KeyBanc raised their Intel price target to $155 from $110, citing strong demand for server processors tied to AI workloads, but the stock's tepid response indicates that bullish demand calls do not settle the capital-return debate.
The caution stems from foundry economics. Intel Foundry recorded $5.421 billion in first-quarter revenue, but only $174 million came from external customers — a mere 3.2% — while the unit posted a $2.437 billion operating loss, equivalent to a negative 45% margin. Intel's adjusted free cash flow was negative $2.016 billion, highlighting the cash drain.
The Ireland project is not solely dependent on external foundry clients. The new capacity targets Intel's own Xeon 6 and next-generation processors made on Intel 3, and Intel Products generated $4.1 billion in operating income in the first quarter. More supply could lift product sales, but the internal hedge is not without cost. Manufacturing chief Naga Chandrasekaran said the investment is demand-led, driven by a significant increase in need for Intel 3 wafers.
Risks remain. If supply loosens, server pricing weakens, or Intel 3 and Xeon ramps slip, the extra capacity could become a burden. Intel flagged risks related to construction timing, labor and equipment availability, component supplies, chip demand and margins, government incentives, and currency moves. Persistent shortages would make the output more valuable; unused capacity would add pressure.
Intel is set to report second-quarter results on July 23, with revenue guidance of $13.8 billion to $14.8 billion. Investors will watch Data Center and AI growth, the Foundry loss, gross capital spending, and adjusted free cash flow for evidence that higher output can improve returns. The market wants proof that Intel's spending will pay off.
