Intel Corporation (NASDAQ: INTC) closed its first full week after second-quarter earnings at $90.20 per share, down 2.3% from the prior week's close. The decline comes despite a robust earnings beat, as investor attention shifts from immediate demand to the quality of the company's foundry operations.
The stock's post-earnings performance has been notable. After gaining 5.2% in after-hours trading on July 23, shares fell 7.9% in the following session compared to the pre-results price. The pullback reflects a rapid decline in optimism, even as operating metrics outpaced market expectations.
Q2 Results Exceed Consensus
For the second quarter, Intel reported revenue of $16.13 billion, surpassing the consensus estimate of $14.42 billion by 11.9%. Adjusted earnings per share came in at $0.42, double the $0.21 analysts had anticipated. Adjusted gross margin reached 41.8%, up 3.0 percentage points from the 38.8% consensus.
Revenue from Data Center and AI topped consensus by 16.6%, while Client revenue was 12.5% higher than expected. The foundry segment outperformed by 4.0%. Intel Foundry reported total revenue of $5.77 billion, up 31% year-over-year, but the majority came from internal sources. External client revenue reached $293 million, accounting for just 5.1% of total segment sales.
According to Intel, the main contributor to external growth was the deconsolidation of Altera. This suggests that overall foundry revenue is not a reliable indicator of securing new customers.
Segment Performance and Foundry Losses
Looking at operating segments, Client Computing generated $8.88 billion in revenue, up 13% year-over-year, with an operating result of $2.34 billion and a margin of 26%. Data Center and AI revenue surged 59% to $6.26 billion, posting an operating profit of $2.47 billion and a margin of 40%. Intel Foundry, however, posted an operating loss of $2.09 billion, representing a negative margin of 36%.
The foundry losses accounted for 43% of Intel's product operating profit, though the loss narrowed by $1.08 billion compared to the same period last year. Intel stated that the expansion of its 14A process will align with committed demand, which must include significant external design wins.
Guidance and Capital Expenditure
For the third quarter, Intel guided revenue in the range of $15.8 billion to $16.8 billion, with a midpoint 7.9% above the $15.1 billion consensus. Adjusted EPS guidance of $0.38 is 40.7% above the $0.27 consensus, and adjusted gross margin is expected to be 42.0%, up 0.2 points from Q2.
Chief Executive Lip-Bu Tan described Q2 as Intel's "strongest revenue growth in more than fifteen years." The company increased its planned capital expenditure for 2026 to $20 billion, up from $18 billion. Chief Financial Officer David Zinsner indicated a "meaningful" increase in spending next year.
The improved forecast results in a greater funding requirement. Cash and short-term assets fell to $29.73 billion from $37.42 billion, a 20.6% decline, while total borrowings rose 8.5% to $50.54 billion. The drop in cash reflected a $14.2 billion buyout of an Ireland joint venture, partially funded by a $6.5 billion term loan that was later refinanced through senior notes.
Analyst Commentary and Market Outlook
Shay Boloor, chief market strategist at Futurum Group, said Intel needs to "improve foundry economics." He noted that proving itself with external customers is the upcoming validation.
Investors will get a direct measure of demand next week. Advanced Micro Devices (NASDAQ: AMD) reports results after the bell on Tuesday, and the U.S. jobs report is due Friday at 8:30 a.m. EDT. According to a Reuters poll, forecasts call for 83,000 new jobs and unemployment at 4.3%.
Risks remain, including potential renegotiation of long-term customer contracts. A downturn in demand could expose 14A expenses, amplify foundry losses, and lead to increased debt.
