Intel $INTC announced 1Q earnings that were far above expectations. The stock is up 22% in aftermarket trading as I write this. Revenue and EPS crushed expectations. Guidance was also above analyst estimates.
On the conference call, there was positive discussion regarding yields improving faster than expected in the 18A plant, a key part of the DKI thesis. Sales would have been better by at least $1B had Intel supply been able to keep up with demand. This was something discussed on the 4Q call as well. Management expects this to improve further in 2Q. As far as “problems” go, this is the best kind to have.
Demand for the Core Ultra Series 3 chip has been very high and the new Xeon chip is selling well with a big contract to Google. On the call, there was discussion of datacenter share movement from GPUs towards CPUs as a result of the shift from training to inference, also a big part of DKI’s positive thesis on Intel.
Cash flow improved, but the CFO noted that higher demand is leading to increasing cap-x expectations from “down” vs last year to “flat”. Again, spending money to meet higher demand is a good “problem”.
Overall, this was an excellent quarter with commentary that validates our initial (and continuing) thesis. We started buying $INTC five months ago in the $34 – $37 range. As a result of the stock rising 130% since then and making additional purchases in the 1-2 months following our initial recommendation, this has become a huge position. I’m still very positive on the name, but might lighten up a little bit just for risk control. Should I do that, I’ll post it to the DKI premium blog in real time.
My (long and detailed) notes from the press release and the call follow:
Revenue of $13.6B was up 7% and was far above analyst estimates of $12.4B.
Adjusted EPS of $.29 was more than double last year’s $.13 and crushed analyst estimates of $.01.
Guidance of 2Q revenue of $13.8B – $14.8B was well-above estimates for $13.1B.
Guidance of adjusted 2Q EPS of $.20 was well-above estimates for $.08.
In the press release, CEO, Lip-Bu Tan, wrote about the shift in AI from training to inference and agentic AI. This is consistent with part of the DKI thesis on the stock. He also made positive comments on improving supply, something he promised when the company reported 4Q earnings. However, CFO, Zinsner, noted that 1Q sales would have been “meaningfully higher”, but “demand continues to outpace our growing supply”. They didn’t go into specifics on the call, but did say the amount of under-shipping was more than $1B. As much as it’s great to have more sales, demand above your ability to supply is the best way to experience that “problem”.
1Q Cash from operations was a positive $1.1B, something welcome for a company that had cash flow problems as recently as last year. Note that FCF (free cash flow) was negative, but much less so vs last year due to higher CFFO and lower cap-x in the quarter. On the conference call, the CFO moved cap-ex expectations for the year from “down” to “flat to down” to “flat”. The reason for the increase in cap-x is increased demand.
Net debt was $12,242MM.
Client computing revenue was up 1%. That’s a win as there have been major concerns that higher RAM prices would lead to higher laptop and desktop prices and hurt sales. I’ve been tracking laptop prices for computers with high(ish) memory specs and while they’re up, it hasn’t been nearly as bad as many feared. These positive results are also consisted with DKI research and expectations (detailed in multiple prior blog posts). Note that this result was a decrease from 4Q ’25, but was also a place where Intel couldn’t get enough supply to satisfy demand.
Data center and AI sales were up 22%. I’m sure no one is surprised that this is going well.
Foundry sales were up 16% to $5.4B. That’s a win. I continue to believe things are going well in the new 18A plant, but acknowledge that it’s going to take a little more time before we’re 100% sure on that. Note that Foundry operating income is still negative. It’s going to take more time to turn this business profitable. There was commentary on the call that 18A yields are better than expected at this point and management expects that to reach mature levels later this year.
New products include a new Xeon workstation processor which Google is buying (previously announced by Intel and discussed on the DKI blog), the new Core Ultra 200HX processors (I have one in the new laptop I’m picking up when I’m back in NY in a week), and the new Core Ultra Series 3 (being produced in Intel’s 18A plant instead of at Taiwan Semiconductor like last year’s Series 2).
During the conference call, Lip-Bu said that “18A based Core Series 3 products are now in full volume production ramp”. That’s what we wanted to see. I’ve been using the Core Ultra chips in my laptops for more than a year. They combine a CPU, GPU, and NPU on one chip. It’s generally cheaper than buying a CPU and a discrete GPU (although there have been some great options for laptops with an Intel Core Ultra and an Nvidia discrete GPU.) In my experience, these laptops don’t have the 20-25 hour battery life that some advertise, but they do get a solid 10 hours with heavy use and the screen at max brightness. I don’t know about you, but I’ve never needed my laptop for more than 10 hours without having the opportunity to plug it in. (I could also turn screen brightness down.)
There was a note in the press release that the new Xeon 6 will also be the host CPU for Nvidia’s Rubin systems. That’s a big win.
Reiterated that Intel will be a “strategic partner” at the Terafab plant working on chips for SpaceX, xAI, and Tesla. As discussed before, there are no public details on the partnership yet. The WSJ was negative(ish) on it. I’m optimistic and think it signals something positive for those interested in high-quality production outside of Taiwan.
Gross margin rose from 36.9% to 39.4%.
R&D was down as a percentage of revenue – from 28.7% to 24.9%.
SG&A also fell as a percentage of revenue from 9.3% to 7.6%.
On the call, Lip-Bu talked about CPUs gaining share from GPUs in servers (Xeon). Again, part of the DKI positive thesis on the stock as we shift from training to inference. As we shift to agentic, I think more of the computing load will shift as well (both in datacenters and on your personal laptops and desktops).
He reiterated Intel hopes to announce external Foundry customers in 2H ’26 / 1H ’27. This is consistent with what he said last quarter. Foundry results were up 20% sequentially due to high demand for the Core Ultra Series 3 chips and higher 18A yields. Currently, external Foundry revenue is minimal representing only $174MM of $5.4B in the quarter.
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