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Intel Surpasses Q3 Earnings Estimates on Robust Data Center Demand
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Key Takeaways
Intel's Q3 earnings surged 126.1% to 52 cents per share, while revenues rose 20.9% to $16.51 billion.
Data Center and AI revenues jumped 78%, while Foundry sales rose 58% amid improving manufacturing execution.
Intel shares plunged over 25% pre-market as weak PC demand and soft Q4 view overshadowed strong Q3 results.
Intel Corporation (INTC - Free Report) reported solid third-quarter 2026 results, with adjusted earnings and revenues beating the Zacks Consensus Estimate. Strong demand for server processors, driven by artificial intelligence (AI) infrastructure investments, supported top-line growth despite weakness in the PC market.
Non-GAAP earnings surged 126.1% year over year to 52 cents per share, surpassing the consensus estimate of 39 cents by 33.33%. Revenues increased 20.9% to $16.51 billion, beating the consensus estimate of $16.44 billion by 0.44%. Data Center and AI revenues jumped 78% year over year, reflecting strong demand across hyperscale, enterprise and neo-cloud customers. However, a soft fourth-quarter outlook overshadowed the feel-good factor for investors and shares plunged more than 25% in pre-market trading.
Intel Corporation Price, Consensus and EPS Surprise
Data Center and AI (DCAI) revenues increased to $7.32 billion from $4.12 billion in the year-ago quarter. Sequentially, revenues improved 17%, supported by higher server CPU output and robust demand for AI infrastructure. Purpose-built silicon revenues increased more than 50% sequentially and more than doubled year over year.
DCAI operating income rose to $3.04 billion from $964 million a year ago, with operating margin expanding to 41.5% from 23.4%. Higher revenues and lower operating expenses aided profitability. Granite Rapids became the largest product family in Intel's server portfolio, while Clearwater Forest began generating revenues. Management highlighted strong customer interest in Diamond Rapids and the new Intel GPU D-series for AI workloads.
Client Business Faces Memory Shortages
Client Computing and Physical AI Group (CCPG) revenues declined 5% year over year to $8.1 billion from $8.54 billion. Revenues fell 9% sequentially as industry-wide memory shortages, higher component prices and constrained IT budgets weakened PC demand. Customers also reduced purchases to manage inventories amid softer consumption.
Despite these headwinds, AI PC revenues grew 35% year over year. Wildcat Lake processor shipments increased approximately 70% sequentially, with available supply sold out. CCPG operating income declined to $2.29 billion from $2.69 billion, while operating margin contracted to 28.2% from 31.6%. Management expects challenging PC market conditions to persist until memory availability and pricing normalize.
Foundry Operations Show Improvement
Intel Foundry revenues climbed 58% year over year to $6.7 billion from $4.24 billion, driven by higher manufacturing volumes and improving execution. Sequential revenues increased 16%, supported by better-than-expected growth in Intel 3 and Intel 18A production. External foundry revenues were $411 million, increasing $118 million sequentially, primarily due to a non-recurring customer program.
The segment reported an operating loss of $1.85 billion compared with a loss of $2.32 billion a year ago. Improved manufacturing yields, shorter production cycles and higher factory utilization helped reduce wafer costs. Intel 18A manufacturing costs declined approximately 40% since the first quarter. The company also released its Intel 14A process design kit in October, advancing its next-generation manufacturing roadmap.
Operating Margins Expand
Non-GAAP gross margin improved to 44.1% from 40% a year ago, reflecting a more favorable product mix and lower manufacturing costs. Non-GAAP operating margin expanded to 19.6% from 11.2%, supported by higher revenues and disciplined spending.
Non-GAAP operating income increased to $3.23 billion from $1.52 billion, while adjusted net income attributable to Intel rose to $2.76 billion from $1.02 billion. Non-GAAP research and development and marketing, general and administrative expenses increased to $4.05 billion from $3.93 billion. On a GAAP basis, net income attributable to Intel declined to $3.32 billion from $4.06 billion.
Cash Position Strengthens
Intel generated $5.08 billion in operating cash flow during the quarter compared with $2.55 billion a year ago. Adjusted free cash flow improved to $1.64 billion from $896 million, despite continued investments in manufacturing capacity and advanced process technologies.
As of Sept. 26, 2026, cash and cash equivalents were $21.85 billion, while short-term investments totaled $32.16 billion. Long-term debt was $46.32 billion. The company completed a $23 billion equity offering in August, strengthening its financial flexibility to fund capacity expansion and address growing server demand.
Soft Fourth-Quarter Outlook
For the fourth quarter of 2026, Intel expects revenues between $15 billion and $16 billion. At the midpoint, non-GAAP gross margin is projected at 38%, with adjusted earnings of 25 cents per share. GAAP earnings are expected to be 10 cents per share.
Management expects DCAI revenues to increase by a mid-teens percentage sequentially, while CCPG revenues are projected to decline more than 20%. Guidance incorporates an estimated $300 million revenue impact from a manufacturing disruption at its Israel facility. Intel expects 2026 gross capital expenditures of $20 billion, with spending projected to increase significantly in 2027 to support expanding production capacity.
Arista Networks Inc. (ANET - Free Report) is scheduled to release third-quarter 2026 earnings on Nov. 3. The Zacks Consensus Estimate for earnings is pegged at $1.08 per share, suggesting growth of 44% from the year-ago reported figure.
Arista has a long-term earnings growth expectation of 22.8%. Arista delivered an average earnings surprise of 8.9% in the last four reported quarters.
Akamai Technologies, Inc. (AKAM - Free Report) is slated to release third-quarter 2026 earnings on Nov. 5. The Zacks Consensus Estimate for earnings is pegged at $1.67 per share, indicating a 10.2% decline from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 5.9%. Akamai delivered an average earnings surprise of 4.8% in the last four reported quarters.
GLOBALFOUNDRIES Inc. (GFS - Free Report) is set to release third-quarter 2026 earnings on Nov. 4. The Zacks Consensus Estimate for earnings is pegged at 51 cents per share, implying a rise of 24.4% from the year-ago reported figure.
GLOBALFOUNDRIES has a long-term earnings growth expectation of 21.2%. GFS delivered an average earnings surprise of 10.9% in the last four reported quarters.
View the Zacks #1 Rank List
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Intel Surpasses Q3 Earnings Estimates on Robust Data Center Demand
Key Takeaways
Intel Corporation (INTC - Free Report) reported solid third-quarter 2026 results, with adjusted earnings and revenues beating the Zacks Consensus Estimate. Strong demand for server processors, driven by artificial intelligence (AI) infrastructure investments, supported top-line growth despite weakness in the PC market.
Non-GAAP earnings surged 126.1% year over year to 52 cents per share, surpassing the consensus estimate of 39 cents by 33.33%. Revenues increased 20.9% to $16.51 billion, beating the consensus estimate of $16.44 billion by 0.44%. Data Center and AI revenues jumped 78% year over year, reflecting strong demand across hyperscale, enterprise and neo-cloud customers. However, a soft fourth-quarter outlook overshadowed the feel-good factor for investors and shares plunged more than 25% in pre-market trading.
Intel Corporation Price, Consensus and EPS Surprise
Intel Corporation price-consensus-eps-surprise-chart | Intel Corporation Quote
Data Center Business Drives Growth
Data Center and AI (DCAI) revenues increased to $7.32 billion from $4.12 billion in the year-ago quarter. Sequentially, revenues improved 17%, supported by higher server CPU output and robust demand for AI infrastructure. Purpose-built silicon revenues increased more than 50% sequentially and more than doubled year over year.
DCAI operating income rose to $3.04 billion from $964 million a year ago, with operating margin expanding to 41.5% from 23.4%. Higher revenues and lower operating expenses aided profitability. Granite Rapids became the largest product family in Intel's server portfolio, while Clearwater Forest began generating revenues. Management highlighted strong customer interest in Diamond Rapids and the new Intel GPU D-series for AI workloads.
Client Business Faces Memory Shortages
Client Computing and Physical AI Group (CCPG) revenues declined 5% year over year to $8.1 billion from $8.54 billion. Revenues fell 9% sequentially as industry-wide memory shortages, higher component prices and constrained IT budgets weakened PC demand. Customers also reduced purchases to manage inventories amid softer consumption.
Despite these headwinds, AI PC revenues grew 35% year over year. Wildcat Lake processor shipments increased approximately 70% sequentially, with available supply sold out. CCPG operating income declined to $2.29 billion from $2.69 billion, while operating margin contracted to 28.2% from 31.6%. Management expects challenging PC market conditions to persist until memory availability and pricing normalize.
Foundry Operations Show Improvement
Intel Foundry revenues climbed 58% year over year to $6.7 billion from $4.24 billion, driven by higher manufacturing volumes and improving execution. Sequential revenues increased 16%, supported by better-than-expected growth in Intel 3 and Intel 18A production. External foundry revenues were $411 million, increasing $118 million sequentially, primarily due to a non-recurring customer program.
The segment reported an operating loss of $1.85 billion compared with a loss of $2.32 billion a year ago. Improved manufacturing yields, shorter production cycles and higher factory utilization helped reduce wafer costs. Intel 18A manufacturing costs declined approximately 40% since the first quarter. The company also released its Intel 14A process design kit in October, advancing its next-generation manufacturing roadmap.
Operating Margins Expand
Non-GAAP gross margin improved to 44.1% from 40% a year ago, reflecting a more favorable product mix and lower manufacturing costs. Non-GAAP operating margin expanded to 19.6% from 11.2%, supported by higher revenues and disciplined spending.
Non-GAAP operating income increased to $3.23 billion from $1.52 billion, while adjusted net income attributable to Intel rose to $2.76 billion from $1.02 billion. Non-GAAP research and development and marketing, general and administrative expenses increased to $4.05 billion from $3.93 billion. On a GAAP basis, net income attributable to Intel declined to $3.32 billion from $4.06 billion.
Cash Position Strengthens
Intel generated $5.08 billion in operating cash flow during the quarter compared with $2.55 billion a year ago. Adjusted free cash flow improved to $1.64 billion from $896 million, despite continued investments in manufacturing capacity and advanced process technologies.
As of Sept. 26, 2026, cash and cash equivalents were $21.85 billion, while short-term investments totaled $32.16 billion. Long-term debt was $46.32 billion. The company completed a $23 billion equity offering in August, strengthening its financial flexibility to fund capacity expansion and address growing server demand.
Soft Fourth-Quarter Outlook
For the fourth quarter of 2026, Intel expects revenues between $15 billion and $16 billion. At the midpoint, non-GAAP gross margin is projected at 38%, with adjusted earnings of 25 cents per share. GAAP earnings are expected to be 10 cents per share.
Management expects DCAI revenues to increase by a mid-teens percentage sequentially, while CCPG revenues are projected to decline more than 20%. Guidance incorporates an estimated $300 million revenue impact from a manufacturing disruption at its Israel facility. Intel expects 2026 gross capital expenditures of $20 billion, with spending projected to increase significantly in 2027 to support expanding production capacity.
Zacks Rank
Intel currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Upcoming Releases
Arista Networks Inc. (ANET - Free Report) is scheduled to release third-quarter 2026 earnings on Nov. 3. The Zacks Consensus Estimate for earnings is pegged at $1.08 per share, suggesting growth of 44% from the year-ago reported figure.
Arista has a long-term earnings growth expectation of 22.8%. Arista delivered an average earnings surprise of 8.9% in the last four reported quarters.
Akamai Technologies, Inc. (AKAM - Free Report) is slated to release third-quarter 2026 earnings on Nov. 5. The Zacks Consensus Estimate for earnings is pegged at $1.67 per share, indicating a 10.2% decline from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 5.9%. Akamai delivered an average earnings surprise of 4.8% in the last four reported quarters.
GLOBALFOUNDRIES Inc. (GFS - Free Report) is set to release third-quarter 2026 earnings on Nov. 4. The Zacks Consensus Estimate for earnings is pegged at 51 cents per share, implying a rise of 24.4% from the year-ago reported figure.
GLOBALFOUNDRIES has a long-term earnings growth expectation of 21.2%. GFS delivered an average earnings surprise of 10.9% in the last four reported quarters.