Intel Just Shocked Everyone, but Is the Stock Still a Buy?
Key Points
Intel is benefiting from a surge in demand for server CPUs.
However, the stock has doubled within the past month and now trades at a frothy valuation.
Intel (NASDAQ: INTC) shocked the market when its quarterly results zoomed past analyst expectations. The stock has now approximately doubled in less than a month.
While analysts praised the quarter and Intel's CEO after the results, it actually looks much more like a case of the company stumbling into a hot trend than anything else. Let's take a closer look at the semiconductor stock.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
CPUs lead the way
In its first quarter, Intel benefited from the sudden surging demand for data center central processing units (CPUs), which are needed to help manage AI agents. The company said the ratio of AI accelerators, like graphics processing units (GPUs), to CPUs was closing due to the shift toward inference and agentic AI.
This helped lead to a 22% jump in its AI (DCAI) product revenue to $5.1 billion. Its client computing group (CCG) product revenue edged up 1% year over year to $7.7 billion, leading to total product revenue rising 9% to $12.8 billion.
Its foundry business, meanwhile, saw revenue climb 16% to $5.4 billion. However, the segment's operating losses remain elevated, with it seeing a loss of $2.4 billion in the quarter. Revenue from Intel's other businesses plunged 33% year over year to $0.6 billion, largely due to the sale of 51% of its Altera subsidiary.
Overall revenue for Intel rose 7% to $13.6 billion, while its adjusted EPS more than doubled to $0.29. That was well ahead of the $0.01 per-share profit on $12.4 billion in revenue that analysts expected.
Below is a table of Intel's results by segments:
Intel Segment |
Q1 Revenue |
Q1 Revenue Growth (YOY) |
|---|---|---|
Product (CCG & DCAI) |
$12.8 billion |
9% |
CCG |
$7.7 billion |
1% |
DCAI |
$5.1 billion |
22% |
Foundry |
$5.4 billion |
16% |
Other (subsidiaries) |
$0.6 billion |
(33%) |
Data source: Intel. YOY = year over year.
Notably, its gross margin, which has been under pressure, saw improvement, up 250 basis points to 39.4%. Adjusted gross margin rose 180 basis points to 41%.
Looking ahead, the company projected Q2 revenue to be between $13.8 billion and $14.8 billion with adjusted EPS of $0.20. That was well ahead of the $0.09 in EPS and $13.1 billion in sales that analysts were expecting. Adjusted gross margins were projected to be around 39%.
It expects computer demand to be weak in the second half of the year. However, it projects that server CPU demand will remain strong into 2027.
Image source: Getty Images.
Is the stock a buy?
In my view, Intel just happened to be in the right place at the right time, with hyperscalers now scrambling for server CPUs. However, before that, it had been losing share to Advanced Micro Devices (NASDAQ: AMD) in the server CPU space and just looked out of sorts. The company still has issues with its foundry business, and its valuation is now to the moon, with a forward P/E of 161.
I'd stay away and would prefer to play the data center CPU trend with AMD.
Geoffrey Seiler has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Intel. The Motley Fool has a disclosure policy.