Intel Corporation (NASDAQ: INTC) saw its shares climb in premarket trading on Friday, with the stock poised to open near $104, a gain of roughly 4%. The advance follows the company's second-quarter earnings report, which significantly exceeded Wall Street expectations, fueled by robust demand for AI server infrastructure.
The headline numbers were impressive. Intel reported second-quarter revenue of $16.13 billion, well above the LSEG consensus estimate of $14.42 billion. Adjusted earnings came in at 42 cents per share, more than double the 21 cents analysts had forecast. Adjusted gross margin of 41.8% also surpassed projections by three percentage points.
However, the key takeaway from the report was the exceptional operating leverage in Intel's data-center and AI (DCAI) segment. Revenue in this division surged 59% year-over-year to $6.262 billion. More importantly, operating profit for the segment skyrocketed nearly fourfold to $2.474 billion, compared to $633 million in the same period last year. This translates to an incremental operating margin of 79.3%, meaning that for every additional dollar of revenue, approximately 79 cents flowed through to segment operating profit.
This performance starkly contrasts with Intel's other segments. The Client Computing and Physical AI group posted a 13% revenue increase to $8.877 billion, with its operating margin holding steady at 26.4%. Meanwhile, the Intel Foundry segment reported a narrower operating loss of $2.089 billion, compared to a loss of $3.168 billion a year ago, but remains a significant drag on overall profitability.
The combined effect of the data-center surge and improved foundry losses drove a dramatic rebound in Intel's overall margins. Non-GAAP gross margin improved to 41.8% from 29.7% in the prior year, while non-GAAP operating margin swung to a positive 17.2% from negative 3.9%. CEO Lip-Bu Tan commented that "AI is driving unprecedented demand for compute," while CFO David Zinsner cited improved factory yields and reduced production cycle times as contributing factors.
Looking ahead, Intel provided an optimistic third-quarter outlook. The company guided for revenue in the range of $15.8 billion to $16.8 billion, with a midpoint of $16.3 billion, which is approximately 7.9% above the LSEG consensus. Adjusted earnings per share for Q3 are expected to be 38 cents, surpassing the analyst estimate of 27 cents by 41%.
The strong performance is prompting Intel to increase its investment. CFO Zinsner raised the projected capital expenditure for 2026 to $20 billion, up from a prior $18 billion, with further substantial spending growth anticipated in 2027. The company has also secured multi-year processor deals with certain customers lasting three to five years.
Despite the positive news, risks remain. On a GAAP basis, Intel reported a net loss of $11.0 billion, primarily due to a $12.5 billion mark-to-market charge related to escrowed shares. Adjusted free cash flow was negative $8.4 billion, impacted by a $12.2 billion net partner outflow. The Foundry unit continues to incur significant losses, and capital requirements are still rising.
Investors will be closely watching two major external events in the coming week: the Federal Reserve's policy meeting on July 28-29, and earnings reports from Microsoft Corporation (NASDAQ: MSFT) and Meta Platforms, Inc. (NASDAQ: META) on July 29, which will provide further insight into cloud and AI infrastructure investment trends.
Intel's stock has surged approximately 172% year-to-date, though it remains over 25% below its record closing high from June 22. Futurum Group strategist Shay Boloor noted that if Intel can maintain its momentum in server growth, the stock may continue to revalue, but cautioned that foundry economics and attracting external customers remain key challenges.
