Intel's data center revenue surged by 59%, Chen Liwu: CPU demand is "taking off," supply cannot keep up

Written by Su Yang, Tencent Technology

Intel is gradually entering a strong recovery cycle.

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

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

Intel's key financial data for the second quarter

Under Non-GAAP standards, Intel's net profit for the quarter was $2.2 billion, 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 turning profitable in the third quarter of 2025, Intel has achieved profitability for four consecutive quarters, with profits gradually expanding.

The recovery in profitability is also reflected in the gross margin.

Under Non-GAAP standards, the gross margin was 41.8%, a significant increase of 12.1 percentage points from 29.7% in the same period last year. Intel's Chief Financial Officer David Zinsner emphasized that the improvement in gross margin is due to the economies of scale brought by higher revenue, as well as the sale of higher-margin, better-priced chips.

After a series of positive signals were announced, Intel's stock price rose by about 11% in after-hours trading.

01

Price increases drive 59% growth in data center revenue

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

In the second quarter of 2026, Intel's Data Center and AI division (DCAI) achieved revenue of $6.3 billion, a staggering increase of 59% year-on-year, far exceeding the company's overall growth rate and easily surpassing analysts' expectations 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 CPU, ASIC, advanced packaging, and a vast foundry network, helping us seize sustainable growth opportunities," said CEO Pat Gelsinger in a statement.

More notably, the market demand has reached a "sweet trouble" level. Gelsinger revealed, "In the data center field, CPU demand is taking off, and demand is exceeding our growing supply capacity."

This supply-demand imbalance has given Intel long-awaited pricing power. Zinsner added, "From a pricing perspective, the situation is better than we expected."

In the Chinese market, some server CPU products have seen a month-on-month price increase of over 10%, with a cumulative increase of over 40% since the beginning of 2026. Foreign media reported that both Intel and AMD are actively discussing long-term agreements with Chinese server customers—only locking in purchase volumes without locking in prices, with some agreements lasting over two years.

Intel disclosed in its financial report that the company has currently finalized 10 such long-term agreements and admitted that customer demand has exceeded current production capacity, putting the company in a constrained supply situation.

Compared to the strong momentum of the data center business, the client business appears relatively stable. The client computing and physical AI division (CCPG), which includes PC business, achieved revenue of $8.9 billion, a year-on-year increase of 13%.

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

02

Foundry business accelerates: revenue grows 31%, welcomes first named customer

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

Intel's foundry recovery accelerates: Q2 revenue of $5.8 billion, losses narrowed to $2.1 billion

Regarding the 18A yield that has attracted external attention, Intel remains optimistic.

In May, Gelsinger revealed at the 54th Annual Global Technology, Media, and Telecommunications Conference hosted by JPMorgan that the Intel 18A process has supported the Core Ultra 3 series processors, codenamed Panther Lake, to enter mass production, with yields improving at a rate of about 7% per month, exceeding the company's internal expectations. Meanwhile, the data center processor Xeon 6+ has also adopted the 18A process for mass production.

At the same time, the more advanced Intel 18A-P has entered the risk production phase as scheduled. Intel has even begun using ASML's high numerical aperture EUV lithography machines to prepare for the mass production of the "graphic layer" of transistors for Panther Lake processors.

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

Meanwhile, rumors about Apple collaborating with Intel to build a factory have also attracted attention. Although U.S. President Trump publicly stated in June that Apple had agreed to collaborate with Intel to design and manufacture chips in the U.S., neither company has confirmed this.

Bernstein analysts predict that if the collaboration is true, the initial focus may be on low-volume, low-risk low-end PC chips, more of a proof-of-concept nature, with limited short-term revenue contribution but significant symbolic meaning.

In an interview after the financial report, Zinsner discussed the outlook for the foundry business, stating that Intel has "gained a lot of customer favor" in advanced chip packaging products, and this business has accumulated "a large backlog of orders." He also revealed that the most advanced 14A process is still being developed as planned, with mass production expected to begin in 2028.

In a broader industrial cooperation landscape, Intel has expanded its long-term strategic partnership with Google Cloud, aiming to extend AI capabilities to all employees and drive internal AI-driven transformation. Additionally, it has established strategic collaborations with companies like Foxconn, Siemens, and Hitachi to jointly develop industry-specific AI and computing solutions powered by Intel processors and dedicated chips.

In light of the fundamental shift in the supply-demand landscape of the CPU market, AMD CEO Lisa Su recently raised her forecast for the CPU market size in 2030 from $120 billion to $220 billion, citing strong demand driven by intelligent workloads. This aligns with Intel's current assessment of supply shortages.

However, after a strong rally in stock prices, some cautious voices have begun to emerge in the market.

Thomas George, a portfolio manager at Grizzle Investment Management, pointed out that Intel's current expected price-to-earnings ratio is about 74 times, far exceeding its 10-year average (22 times) and higher than competitors like Nvidia and Broadcom, stating, "This is a stock that the market has already moved ahead of, at least in terms of valuation."

03

Capital expenditure raised to $20 billion, building momentum for future growth

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

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

In terms of specific investment actions, Intel announced an investment of approximately $5.7 billion to expand manufacturing capacity for the Xeon 6 and next-generation Xeon processors based on the Intel 3 process. At the same time, Intel has also expanded its capacity at its facility in Poway, California, enhancing photomask manufacturing capabilities to support the development and manufacturing of current and future leading-edge process technologies.

"We performed strongly in the second quarter, benefiting from robust demand and improved execution, with revenue exceeding our financial guidance," Zinsner stated. "AI-driven computing demand continues to strengthen, and to support expected growth in product and foundry businesses this year and next, we are significantly increasing investments in equipment, cleanroom space, and substrates."

Meanwhile, Intel's guidance for the third quarter is also quite optimistic.

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