Intel Rises 24% in Three Months: Should You Buy the Stock?

Intel Corporation INTC has gained 24% over the past three months against the industry’s decline of 6%. It has outperformed compared to the Zacks Computer & Technology sector and the S&P 500.

The company has also outperformed its competitor, Advanced Micro Devices AMD, and Qualcomm Incorporated QCOM. AMD has declined 4.5%, while Qualcomm has decreased 15.2% during this period.

Intel’s performance over the past few months has drawn investor interest. The key question, however, is whether this momentum is worth riding or if caution is warranted. Let’s take a closer look.

Intel Rides on Strong AI Momentum

Intel is benefiting from solid demand in the Data Center & AI segment. Revenues grew 15% sequentially, and revenues came in above expectations. The company is witnessing strong order growth, and demand for traditional server CPUs remains very strong. The company is forming strategic collaborations with industry leaders like NVIDIA to drive innovation. In collaboration with NVDA, it is working on developing a custom XEON fully integrated with NVIDIA’s NVLink technology to bring best-in-class x86 performance to AI host nodes. 

Solid traction in the AI PC market is also a major growth driver. In the fourth quarter, AI PC units grew 16% year over year. It is collaborating with original equipment manufacturers, such as HP and Microsoft, to expand into the AI PC domain. Along with the AI PC domain, Intel is also expanding into the rapidly growing Edge AI landscape.

INTC Plagued by Supply Constraints, Loss in Foundry Business

Despite strong demand from multiple end markets, Intel is failing to match customer demand. The company is getting into 2026 with depleted buffer inventory, which will limit its ability to match customer demand effectively, impeding revenue and overall growth prospects in the near term. 

Intel Foundry business has reported an operating loss of $2.5 billion in the fourth quarter. Loss increased due to the early ramp of Intel 18A. Intel’s 18A yield is still below management’s internal targets. Loss in the foundry business remains a major undermining factor in improving profitability and cash flow.

The company’s also heavily dependent on external funding and asset monetization. Monetization of Mobilieye, completion of our stake sale of Altera, government incentives, investment from Softbank and NVIDIA are supporting its capex spending. This high reliance on external support remains a concern.

INTC Affected by Weakness in CCG, Stiff Competition

Client Computing Group (CCG) revenues decreased to $8.19 billion from $8.77 billion, driven by a constrained supply despite solid data center demand. Despite growth in the AI PC business, the overall net sales were down 4% sequentially. Lower revenues, early 18A ramp, combined with unfavorable product mix, are putting pressure on gross margin. It is witnessing intensifying competition in the server, storage and networking markets.

The server segment has always generated strong margins, and Intel’s powerful architecture has always been considered supreme. However, it lagged NVIDIA on the innovation front with the latter’s H100 and Blackwell graphics processing units (GPUs) being runaway successes. In the AI PC domain, it is facing strong competition from Qualcomm. The company has been also facing stiff competition from AMD in the commercial PC market. Such factors are straining its growth prospects.

Tariff Related Uncertainties Remains a Concern

Intel generates a significant portion of its revenues from China. Tariff-related uncertainties amid high geopolitical tension between the United States and China remain a major concern. Moreover, the communist nation's purported move to replace U.S.-made chips with domestic alternatives significantly affected its revenue prospects. The recent directive to phase out foreign chips from key telecom networks by 2027 underscores Beijing's accelerating efforts to reduce reliance on Western technology amid escalating U.S.-China tensions.

Estimate Revision Trend of INTC

Earnings estimates for Intel for 2025 have moved down 15.25% to 50 cents over the past 60 days, while the same for 2026 has declined 14.04% to 98 cents. The negative estimate revision depicts bearish sentiments for the stock.

Key Valuation Metric for Intel

From a valuation standpoint, Intel appears to be relatively cheaper than the industry and below its mean. Going by the price/sales ratio, the company shares currently trade at 4.29 forward sales, lower than 17.78 for the industry.

End Note

Intel is taking various initiatives to establish a strong foothold in the expanding AI infrastructure market. However, despite strong AI traction, the company is facing stiff competition in each of the markets it serves. Downward estimate revision highlights dwindling investors’ confidence. Uncertainty related to Intel 18A adoption remains a concern. Supply constraints will cap its growth to some extent, at least in the near term. Despite growing investment in advanced chip development, regaining a competitive edge over rivals appears to be a challenging endeavor for Intel. Hence, investors should avoid investing in this stock. The company currently carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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