Intel’s forecast blows past expectations, the stock price jumps 13% in seconds but quickly gives it back: data centers are backing Intel’s turnaround fight

Intel’s Q3 forecast far exceeded market expectations. Data center computing demand supported this turnaround battle; the stock surged more than 13% after hours, only to unwind within a few hours to about 3%.
(Background: Intel layoffs sent the stock up 8.6%; the market placed a bet on a “losing to Nvidia” transformation)
(Background: AI spending submits its work tonight: Alphabet stakes out $190 billion in capital expenditures, while Tesla faces massive volatility)

Intel’s (Intel) third-quarter revenue guidance released this morning (the 24th) landed between $15.8 billion and $16.8 billion. Even taking the bottom end of the range, it is still far above Wall Street’s original estimate of $15.1 billion. This is CEO Lip-Bu Tan’s toughest and most convincing performance report since taking over more than a year ago: data center segment revenue grew 59% year over year—more than double the company-wide revenue growth rate.

The announcement sent the after-hours stock price into a roller coaster of explosive gains and losses. The stock once surged more than 13%; the market cheered first, but then quickly dumped the gains, and by the time this article was finalized the increase had narrowed to about 3%. The reason the rally didn’t hold may be that the earnings report still hides a book loss of more than $11 billion, making this turnaround battle look less smooth.

“CPUs are taking off” — a sweet kind of trouble

Bloomberg reported that this time’s forecast beat was largely driven by a surge in data center spending, while overall revenue rose 25% year over year in the same period. Behind it is an industry-level turning point: as the AI industry’s focus shifts from “training models” to “running inference,” what’s needed is no longer just the accelerators from Nvidia. General-purpose central processing units (CPUs) are also back on the procurement list.

Lip-Bu Tan told Bloomberg that in data centers, “CPUs are taking off.” Demand exceeds the supply the company keeps increasing, which he called “a sweet kind of trouble.” He said manufacturing yield is improving, giving Intel the confidence to take on more orders and also increasing the odds that other companies will choose to outsource fabrication to it. While he didn’t want to disclose customers, he said there are multiple cooperation discussions in progress, with results possibly known as early as the beginning of next year.

CFO Dave Zinsner put it more plainly: the company originally planned to cut capital expenditures, but has now changed course and committed to increasing spending. This year’s capital expenditures are about $20 billion, and next year could rise again. A year ago, it was a company that had lost process leadership, missed the AI boom, and continued to post losses—now it is even worrying about shortages.

A massive book loss—losing or winning?

Intel’s earnings report shows that in Q2, GAAP (Generally Accepted Accounting Principles, in simple terms the strictest official accounting rules) net loss was $11.03B, with loss per share of $2.16. Why is the gap so large?

The key is a mark-to-market loss of $12.53B (meaning that when the carrying value of book assets changes, profit and loss must be adjusted accordingly). It is tied to escrow shares obtained last year by the U.S. government through warrants. The reason the book loss is so large is precisely that Intel’s stock price has risen sharply this year; the more valuable those shares the government holds are, the larger the loss that must be recognized on the books. However, this is a paper loss—an accounting loss, not actual cash “burn” resulting in a true cash loss.

Gross margin is similarly mixed. The adjusted gross margin expanded to 40.4% in the quarter, up nearly 13 percentage points year over year, but it still remains a long way from Intel’s full-throttle era when it often topped 60% or more. The wafer-fab foundry segment revenue was $5.8 billion, up 31% year over year, but orders still come almost entirely from the company’s own product divisions, while external customers are still being sought; the flagship plant complex in Ohio has also been delayed again and again.

Before the earnings release, Intel’s stock had already risen more than 170% this year. It is still down about 28% from its all-time high, and expectations had long since run ahead of the fundamentals.