Intel Corporation (NASDAQ:INTC) experienced a sharp decline in premarket trading on Monday, with shares falling 7.9% as the company's recent surge in artificial intelligence profits collided with a substantial $20 billion capital expenditure commitment. The stock ended the previous session at $92.32, marking a 7.9% drop, while the broader semiconductor index retreated 4.5%.
The decline did not reflect weak demand. Intel reported a 25% year-over-year increase in second-quarter revenue, reaching $16.1 billion. Adjusted earnings came in at 42 cents per share, surpassing expectations. However, the company posted a GAAP net loss of $11.0 billion, primarily due to a valuation adjustment, excluding a $12.5 billion mark-to-market loss on shares held in escrow. Non-GAAP net income totaled $2.2 billion.
Operating leverage was a key driver of the financial results. Revenue climbed by $3.269 billion compared to the same period last year, while non-GAAP operating income rose by $3.273 billion. This near-perfect conversion of revenue growth into operating profit highlights the company's fixed-cost structure, which Seaport Research analyst Jay Goldberg described as providing "considerable operating leverage." The comparison starts from a low base in 2025, but the trend is clear.
The data center and AI segment was the primary growth engine, contributing $2.323 billion of the revenue increase, or approximately 71% of total growth. Revenue from this segment surged 59% to $6.262 billion. However, external foundry revenue remained limited, with non-Intel clients accounting for just $293 million, or about 5% of total foundry sales. The increase was largely due to Altera's transition to an external client following its deconsolidation. Despite a reduction in losses, Intel Foundry recorded an operating loss of $2.089 billion.
Management plans to leverage the strong operating leverage into additional capacity. Intel raised its 2026 capital expenditure guidance to more than $20 billion, up from $18 billion, with further increases expected in 2027. John Pitzer, Intel's head of investor relations, stated that the higher targets are intended to "signal our confidence in the growth" across the company's operations. Cash flow has improved, with operating cash flow in the first half exceeding capital spending on property and equipment by $1.9 billion, compared to a negative $5.9 billion gap last year. This improvement was partly driven by $1.7 billion in customer deposits and $934 million in prepayments to suppliers.
Friday's decline lagged the chip index by 3.4 percentage points, reflecting broader sector concerns. Despite the recent slide, Intel shares remain more than double their year-to-date level. The outlook for the third quarter is steady, with revenue guidance at a midpoint of $16.3 billion, roughly 1% higher than the second quarter, and adjusted earnings per share expected to reach 38 cents.
Investors are now focused on the upcoming round of megacap earnings this week, which will test whether increased spending on AI among the largest players continues to generate strong cash flow. Key risks include persistent foundry losses, a lack of firm demand commitments for Intel's 14A process, potential component shortages extending beyond 2027, and the possibility that higher capital expenditure could reverse recent improvements in cash flow.
