Article Thesis

Intel Corporation (INTC) reported much stronger than expected Q1 earnings results on Thursday evening, which resulted in a huge positive share price reaction. This followed huge gains over the last year — although from a low level. Intel continues with its turnaround, but its valuation has gotten rather high — so right now may not be a good time to enter or expand a position in Intel.

Past Coverage

I have written about Intel Corporation here on Seeking Alpha in the past, most recently in September 2025, when I published this article. I was bullish on INTC back then on the back of a deal with Nvidia (NVDA), which has worked out very well so far — INTC has returned more than 150% since September when we factor in the post-earnings move on Thursday. With the company reporting its most recent earnings results for its fiscal first quarter, I want to update my views on the company today.

What Happened?

Following the market's close on Thursday, Intel Corporation released its Q1 results, with the headline numbers looking like this:

The company outperformed expectations on both lines — naturally, that's a very nice result, although it wasn't too much of a surprise, as the company had delivered a double beat during the previous two quarters as well. The market reacted very positively to Intel's results, sending shares higher by close to 20% at the time of writing — this means that shares are currently trading above the previous all-time high. Let's take a closer look.

Intel's Q1: Turnaround In Progress

Intel's revenues were higher than expected, but the growth rate of 7% wasn't quite as explosive as what one might expect based on the 15% share price jump in after-hours trading. On the other hand, investors got used to rather bad results from Intel in the past, and analysts were expecting a small revenue decline — so results were a lot better than expected, although INTC's growth is still way lower compared to that of many other chip companies.

Importantly, Intel beat its own guidance — it had forecasted significantly lower revenues in January. Companies and management teams that under-promise and overdeliver are a lot better compared to ones that do the contrary, I believe — and INTC's ability to exceed its own goals seems to be well-liked by the market, too.

Looking at the revenue performance across Intel's different business units, we see that Artificial Intelligence-exposed units did, not surprisingly, perform well: Intel's Data Center and AI unit saw its revenue expand by more than 20%, from $4.1 billion to $5.1 billion, which is a very nice growth rate, although still way below what Nvidia is doing with its data center business, despite NVDA growing from a much larger base. Of course, not every company can deliver Nvidia-like growth, and Intel's growth in this unit was appealing for sure.

Intel's client computing business fared worse, reporting more or less stable revenues versus one year earlier — not a disaster at all, but far from exciting. When we consider the rather weak consumer sentiment in many countries, as well as the energy price shock that started in Q1 and that likely made some consumers wary of buying higher-priced goods, the macro environment wasn't easy for the client computing unit, but Intel, overall, is still held back when its largest unit isn't growing at all.

Intel's foundry service showed some growth, although margins are still deeply negative, so investors don't really have anything from this growth for now, as it remains a big money loser — the foundry business actually lost $100 million more in Q1 2026 compared to one year earlier. Hopefully, this will change in the foreseeable future, as the revenue growth that is generated in the foundry business isn't really valuable otherwise.

Looking at the margin development of Intel's two other main business units, data center and AI and client computing, we see that the former did quite well: its segment operating margin more than doubled, from 14% to 31%, which is the result of both pricing power and operating leverage. While margins are still behind what competitors such as Nvidia achieve, operating margins of around 30% are far from unattractive, and the big margin increase in this business unit was a major driver of company-wide profits. Intel's client computing business reported a segment operating margin of 33% for the first quarter, which was up slightly from one year earlier. I like that the margin expanded a little — this indicates that INTC is doing well when it comes to cost controls — but between only some minor margin growth and stable revenues, there was not a lot of profit growth in the client computing unit.

In recent years, cash flows were an issue for Intel, as heavy investments and rather weak cash generation hurt its balance sheet. During the first quarter, Intel burned some cash as well: Operating cash flow was rather meager, at just $1 billion, and due to $5 billion in capital spending, free cash flow was negative by $2 billion after accounting for investments from joint venture partners worth $2 billion. While Intel isn't at risk financially, shareholders will likely not get any meaningful shareholder returns in the foreseeable future due to the still-weak free cash flow numbers.

Intel: What's the Outlook?

With its Q1 report, Intel also announced its expectations for the second quarter. Management sees revenues of $13.8 billion to $14.8 billion, which is a rather wide range, but going with the middle of that, Intel would grow at a low-double-digit rate. That would mean some growth acceleration versus the just-reported first quarter and a major improvement versus the last couple of years — a 9.7% revenue increase in late 2023 was the best INTC had to offer since 2021. If Intel hits its own forecasts, that would be a sign that the current turnaround continues to progress — and based on the recent history, INTC may even exceed its own guidance once more, which would, of course, be even better.

Management forecasts a gross margin of 39% for Q2, which would be a bit below the 41% we saw in Q1 — hopefully, this is just Intel's management being conservative again, as a quarter-to-quarter margin decline would be unfortunate. Even if Intel doesn't exceed its guidance, it seems pretty clear that Q2 2026 will be way better than Q2 2025, though — the guidance implies a gross margin improvement of almost 1,000 basis points year-over-year.

Is Intel A Good Investment?

Betting on an INTC turnaround worked very well for those who did so — over the last 12 months alone, Intel is up by more than 200%. With Intel trading in the high-$70s following the Q1 earnings release, it is now, by far, no longer a bargain stock — instead, it trades at the highest share price it has seen in recent years. By now, the company seems to be fully priced for a big recovery — but while things are moving in the right direction, Intel hasn't fully recovered yet. Based on that, I'm less bullish on INTC now compared to last fall, when shares traded at around $30, as the upside potential seems way more limited now, and since the downside risk, if anything goes wrong, is now likely a lot more elevated.

It is definitely possible that INTC continues to climb higher if good news continues to come in, especially if the market remains enthusiastic about semiconductor stocks in general, but I think INTC was a much better investment when there was more pessimism and less enthusiasm around the stock. Its Q1 results were surprisingly good, but they weren't a "20% after-hours price jump following a huge rally over the previous months" kind of good, I believe.