Intel's data center revenue surges by 59%, Lip-Bu Tan says that the demand for CPUs is "taking off" and the supply cannot keep up with the market demand.

Intel is gradually embarking on a strong recovery cycle.

On July 23 local time in the United States, Intel released its financial results for the second quarter of 2026 ending in late June. Among them, revenue reached $16.1 billion, a 25% year-over-year increase. This growth rate marks the highest level since the third quarter of 2011. In contrast, the average expectation of analysts surveyed by the London Stock Exchange Group (LSEG) was $14.42 billion.

Under U.S. Generally Accepted Accounting Principles (GAAP), Intel recorded a net loss of $11 billion in the second quarter, with a loss per share of $2.16. However, this huge loss is related to the 10% stake held by the U.S. government being in an "escrow" state, which does not affect the company's actual cash flow and cannot reflect the true performance of its main business.

Key Financial Data of Intel's Second Quarter

On a Non-GAAP basis, Intel recorded a net profit of $2.2 billion for the quarter, with earnings per share of $0.42, compared to a net loss of $400 million and a loss per share of $0.10 in the same period last year. Analysts had previously expected earnings per share of only $0.21. It is worth noting that since Intel turned profitable in the third quarter of 2025, it has achieved profitability for four consecutive quarters, with profits gradually expanding.

The recovery of profitability is also reflected in gross margin.

On a Non-GAAP basis, gross margin reached 41.8%, a significant increase of 12.1 percentage points from 29.7% in the same period last year. Intel CFO David Zinsner emphasized that the gross margin improvement benefited from economies of scale brought by higher revenue, as well as the company selling chips with higher profit margins and better pricing.

Following the release of a series of positive signals, Intel's stock price rose by about 11% in after-hours trading.

01 Price Hikes Drive Data Center Revenue Up 59%

The biggest highlight in the financial report is undoubtedly the data center business.

In the second quarter of 2026, Intel's Data Center and AI Group (DCAI) achieved revenue of $6.3 billion, a sharp 59% year-over-year increase, which not only far exceeded the company's overall growth rate but also easily surpassed analysts' expectation of $5.6 billion.

"AI is driving unprecedented demand for computing power. As we continue to execute our established strategy, Intel is well-positioned in CPUs, ASICs, advanced packaging, and a vast wafer foundry network, which helps us capture sustainable growth opportunities," said CEO Pat Gelsinger in a statement.

What is more noteworthy is that the market demand has reached the level of a "sweet trouble". Pat Gelsinger revealed: "In the data center space, CPU demand is taking off, and demand is outpacing our growing supply capacity."

It is this supply-demand imbalance that has given Intel the long-lost pricing power. Zinsner added: "From a pricing perspective, the situation is better than we expected."

In the Chinese market, the price of some server CPU products has increased by more than 10% quarter-on-quarter, with a cumulative increase of more than 40% since the beginning of 2026. Foreign media report that both Intel and AMD are actively negotiating long-term agreements with Chinese server customers—locking in purchase volumes without locking in prices, with some coverage periods extending up to two years or more.

Intel revealed in its financial report that the company has now finalized 10 such long-term agreements, and admitted that customer demand has exceeded current production capacity, leaving the company in a supply-constrained state.

Compared to the strong momentum of the data center business, the client business is relatively stable. The Client Computing and Physical AI Group (CCPG), which includes the PC business, generated revenue of $8.9 billion for the quarter, a 13% year-over-year increase.

Zinsner stated that due to the impact of memory shortages, PC sales are expected to be flat in the third quarter.

02 Foundry Business Accelerates: Revenue Up 31%, Welcomes First Named Customer

Another strategic pillar of Intel—the foundry business achieved revenue of $5.8 billion in the second quarter, a 31% year-over-year increase. However, most of its revenue still comes from providing manufacturing services for Intel's own products, with a large amount of internal offset. The financial report shows that the business is still in an operating loss state for the current period.

Intel Foundry Recovery Accelerates: Q2 Revenue $5.8 Billion, Loss Narrows to $2.1 Billion

Regarding the 18A yield that the outside world is concerned about, Intel remains optimistic.

In May, Pat Gelsinger revealed at JPMorgan's 54th Annual Global Technology, Media and Communications Conference that Intel 18A process has supported the mass production of the Core Ultra 3 series processors codenamed Panther Lake, with yields improving at a rate of about 7% per month, exceeding the company's internal expectations. At the same time, the data center processor Xeon 6+ is also mass-produced using the 18A process.

Meanwhile, the more advanced Intel 18A-P has also entered risk production as scheduled. Intel has even begun using ASML's high-NA EUV lithography machine to prepare for mass production of the "pattern layers" of the transistor part of the Panther Lake processor.

In terms of expanding external customers, Intel achieved a historic breakthrough this quarter. Cybersecurity company Fortinet announced a strategic cooperation with Intel, which will leverage its design, packaging, and manufacturing capabilities to develop Fortinet security processors. This is the first publicly disclosed named customer for Intel's foundry business.

At the same time, market rumors about Apple and Intel cooperating to build a factory have also attracted much attention. Although U.S. President Trump publicly stated in June that Apple has agreed to cooperate with Intel to design and produce chips in the United States, neither company has confirmed this.

Analysts at Bernstein judge that if the cooperation is true, the initial focus may be on low-volume, low-risk low-end PC chips, which is more of a proof-of-concept nature. Although the short-term revenue contribution is limited, it has huge symbolic significance.

When talking about the prospects of the foundry business in a post-earnings interview, Zinsner said that Intel has "gained a lot of customer interest" in advanced chip packaging products, and the business has accumulated "a large backlog of orders". He also revealed that the most advanced 14A process technology is still under development as planned, and is expected to enter mass production in 2028.

In the broader industrial cooperation landscape, Intel and Google Cloud have expanded their multi-year strategic cooperation, aiming to extend AI capabilities to all employees of the company and promote internal AI-driven transformation. At the same time, it has also established strategic cooperation with companies such as Foxconn, Siemens, and Hitachi to jointly develop industry-specific AI and computing solutions driven by Intel processors and dedicated chips.

Facing the fundamental shift in the supply-demand pattern of the CPU market, AMD CEO Lisa Su recently significantly raised the 2030 CPU market size forecast from the previous $120 billion to $220 billion, citing strong demand brought by agent workloads. This echoes Intel's current judgment of supply shortage.

However, after the stock price has surged all the way, some prudent voices have begun to emerge in the market.

Thomas George, portfolio manager at Grizzle Investment Management, pointed out that Intel currently has a forward P/E ratio of about 74 times, which is much higher than its 10-year average (22 times) and also higher than competitors such as NVIDIA and Broadcom. "This is a stock where the market has moved ahead, at least in terms of valuation."

03 Raises Capital Expenditure to $20 Billion to Fuel Future Growth

In order to convert customers into growth, Intel has decided to decisively increase investment.

The company announced that it will raise its full-year 2026 capital expenditure plan from $18 billion to $20 billion. Zinsner said that the previously relatively conservative expenditure plan has changed, and the company is now committed to increasing the budget, predicting that 2027 expenditure will further increase to support the expected growth of product and foundry businesses next year.

In terms of specific investment actions, Intel announced that it will invest about $5.7 billion to expand the manufacturing capacity of Xeon 6 and next-generation Xeon processors based on the Intel 3 process. At the same time, Intel has also expanded the capacity of its Fab 24 campus in Arizona, enhancing photomask manufacturing capabilities to support the development and manufacturing of current and future leading process technologies.

"Our strong second-quarter performance, benefiting from robust demand and improved execution, resulted in revenue exceeding our financial guidance," Zinsner said in a statement. "AI-driven computing demand continues to strengthen. To support the expected growth in our product and foundry businesses this year and next, we are significantly increasing investments in equipment, clean room space, and substrates."

Meanwhile, the third-quarter guidance given by Intel is quite optimistic.

The company expects third-quarter revenue to be in the range of $15.8 billion to $16.8 billion, significantly higher than analysts' expectation of $15.1 billion; Non-GAAP earnings per share are expected to be $0.38, also better than analysts' expectation of $0.27; gross margin is expected to remain around 42%.

Special translator Jin Lu also contributed to this article

This article is from "Tencent Tech", written by Su Yang, edited by Xu Qingyang, and published with authorization from 36Kr.