Intel forecasts adjusted profit halving next quarter despite a server chip boom

Intel designs and manufactures advanced semiconductors.¹ It reports through a client unit that sells processors for laptops and desktops, now called the Client Computing and Physical AI Group, a data center and artificial intelligence unit that sells Xeon server chips, a foundry unit that runs its factories, and an all-other group that includes Mobileye, whose revenue was $493 million in the third quarter.² In the third quarter the client unit had $8.1 billion of revenue, the data center unit $7.3 billion and the foundry unit $6.7 billion.³ Most foundry revenue comes from making Intel's own chips: $6.3 billion was sold inside the company, and outside revenue was $411 million.⁴ In its annual report filed January 23, 2026, Intel said it had been unsuccessful in winning any significant outside foundry customer for any of its manufacturing processes.⁵

The past year reshaped who owns Intel. It signed an agreement with the Commerce Department on August 22, 2025, and lists the government's significant stake in the company as a risk.¹ Under that agreement Intel issued the department 275 million shares and put another 159 million into escrow for it.² It also sold 215 million shares to NVIDIA at $23.28 each.³ It then guided the first quarter of 2026 to break-even on an adjusted basis, reported $16.1 billion of revenue in the second quarter, and in July guided the third quarter to $15.8 billion to $16.8 billion.⁴

Chips are short across the industry. In its second-quarter report, Intel said shortages of substrates, memory and other critical components would persist into next year and may limit its ability to meet customer demand.¹ Bloomberg reported on October 29 that Intel projects the personal computer slump will persist through at least the first half of 2027, with the market set to decline 10% next year after a 12% slide in 2026.²

The stock was already sliding before the report. Intel closed at $127.4 on September 24, 2026, and at $95.525 on October 28, a drop of 25%.¹ Over the same days the semiconductor fund SMH fell about 5% and Advanced Micro Devices about 8%.² Earlier in October, a JPMorgan note summarized by the Wall Street Journal expected a very tight supply of leading-edge chips to keep pushing profit estimates up through 2027.³ After the release, Bloomberg reported that the revenue forecast missed analysts' estimates and that the shares fell as much as 17% in extended trading. Our price data begin in mid-September, so this report does not give a full-year price range.⁴

Start with what went right. In July, Intel told investors to expect third-quarter revenue of $15.8 billion to $16.8 billion and adjusted profit of $0.38 a share.¹ It delivered $16.5 billion, up 21% from a year earlier, and adjusted profit of $0.52 a share.² The finance chief said revenue, gross margin and profit per share all beat the company's targets, including its strongest data center revenue growth in 15 years.³

The data center unit brought in $7.3 billion, up 78% from a year earlier.¹ Most of that came from price: average selling prices for server chips rose 54%, while server volume rose 10%.² The unit earned $3.0 billion of operating profit in the quarter, and its sales rose about 17% from the second quarter's $6.3 billion.³ The chief executive called demand for Xeon extraordinary and said the immediate priority is to unlock more supply.⁴

The client unit went the other way. Its revenue was $8.1 billion, down 5% from a year earlier and about 9% below the second quarter's $8.9 billion.¹ Within it, notebook and desktop revenue fell $424 million to $6.9 billion as unit volume dropped 14%, partly offset by 9% higher prices.² The unit's operating profit fell $409 million, driven by $763 million of higher period charges.³ The chief executive pointed to near-term headwinds across the personal computer industry.⁴

Then came the forecast. For the fourth quarter Intel expects revenue of $15.0 billion to $16.0 billion, reported profit of $0.10 a share and adjusted profit of $0.25.¹ It expects a reported gross margin of 37.1% and an adjusted one of 38.0%, and both the margin and profit figures assume the middle of the revenue range.² The reported tax rate is forecast at 31%, against 11% on the adjusted basis, which is one reason reported profit sits so far below adjusted profit.³

The midpoint, $15.5 billion, is about 6% below the third quarter's revenue, and adjusted profit per share would be less than half of the $0.52 just reported.¹ The adjusted gross margin would fall 6.1 percentage points from 44.1%.² Against a year earlier, the picture is kinder. Intel reported fourth-quarter 2025 revenue of $13.7 billion and adjusted profit of $0.15 a share, so the new midpoint is about 13% higher and the $0.25 target is well above that mark.³

The quarterly report filed October 30 names one new pressure on costs. In mid-October 2026, an accident at Intel's factory in Kiryat Gat, Israel, caused employee casualties and injuries and halted manufacturing there.¹ Intel expects operations to resume by the end of October 2026, but says the accident will hurt manufacturing costs, gross profit and operating results in the fourth quarter and through the first half of 2027.² It cannot yet estimate the financial impact.³

Two other pressures run through the filings. Intel expects weak client trends to worsen in the fourth quarter and persist in 2027, even as it expects strong data center demand to continue into the fourth quarter and beyond.¹ And its newest manufacturing process costs more for now: a growing mix of higher-cost Intel 18A wafers cut the foundry unit's product profit by $936 million this year to date.²

Intel's reported profit swings on items that are not cash. Third-quarter reported profit of $0.60 a share was higher than the adjusted $0.52 because it included a $1.0 billion paper gain from re-valuing a liability tied to shares held in escrow for the Commerce Department, worth $0.17 a share.¹ That liability stood at $13.7 billion at quarter end.² For the year to date the same item produced a $12.6 billion loss, leaving a loss attributable to Intel of $11.4 billion so far this year. A first-quarter goodwill write-down of $3.9 billion, which used no cash, added to it.³

Cash tells a steadier story. Operating cash flow was $5.1 billion in the third quarter, and gross spending on plants and equipment was $4.2 billion, leaving about $0.9 billion.¹ Intel's own adjusted free cash flow, $1.6 billion, is higher because it nets out government incentives and partner contributions to its factory ventures, then subtracts finance lease payments.² For the year to date, operating cash flow was $13.2 billion, against $5.4 billion in the same stretch of 2025.³

The balance sheet can carry this for now. At September 26, 2026, Intel held $54.0 billion of cash and short-term investments against $50.1 billion of total debt, a net cash position of about $3.9 billion.¹ Short-term debt was $3.8 billion, and the annual report's schedule showed $3.8 billion of debt maturing in 2027.² Neither of its revolving credit lines, bank lines it can draw on when needed that now total $15.0 billion, had borrowings outstanding, and management says it has enough funding for the next 12 months and the longer term.³

The calls on that cash are large. Intel had $19.6 billion of capital spending commitments at quarter end, and two substrate supply deals need roughly $5.3 billion to $6.1 billion of funding, with about $3.3 billion paid by the end of 2027.¹ It has accrued $1.0 billion for litigation with VLSI.² It also agreed to buy quantum software maker Classiq for about $1.9 billion, payable in cash or Intel shares, with closing expected in the first half of 2027.³

Debt is not the pressure point. Third-quarter operating income of $2.5 billion covered the quarter's interest of about $588 million, the $324 million expensed plus $264 million capitalized into factories, about 4.3 times.¹ For the year to date, operating income plus depreciation, a rough stand-in for cash operating profit, came to about $10.1 billion. That figure is after the first-quarter goodwill write-down, which used no cash. Annualized, that is about $13.5 billion, so total debt of $50.1 billion is about 3.7 times it, but cash and short-term investments cover all of it.² Adding back the $3.9 billion write-down gives about $14.1 billion for nine months, or roughly $18.7 billion at a full-year pace, so total debt of $50.1 billion is about 2.7 times that, and cash and short-term investments cover all of it.³

The share count is the quieter cost. Intel had 5,315 million shares outstanding on October 23, 2026, and its diluted share count in the third quarter was 5,307 million, about 17% more than a year earlier.¹ More could come into the per-share count: of the 132 million shares Intel issued into escrow for the Commerce Department and had not yet released at quarter end, 66 million are treated as contingently issuable and left out of per-share figures.² The department also holds warrants to buy up to 241 million shares at $20.00, but they become usable only if Intel stops owning at least 51% of its foundry business.³ Intel's promise not to sell new stock after the August sale, which had exceptions, ran only until it announced third-quarter earnings, so it has now lapsed, and Classiq could be paid in shares.⁴ In July, Intel also registered another 150 million shares for its employee equity plan and 133 million for its employee stock purchase plan. No shares were bought back in the third quarter.⁵

Common holders stand behind other claims. Intel's senior notes rank equally with its other unsecured debt but effectively behind all liabilities of its subsidiaries.¹ Outside partners also own pieces of key assets: Brookfield holds 49% of the Arizona factory venture, and outside holders own 24% of Mobileye.²

The August stock sale shows both sides of a trade. Buyers paid $95 a share for about 242 million new shares, giving Intel $23.0 billion before costs in a sale completed on August 12, 2026.¹ The underwriters paid Intel $93.4325 a share, and after $383 million of discounts and costs Intel kept $22.6 billion for general corporate purposes, which may include capital spending and working capital.² The prospectus said Chief Executive Lip-Bu Tan and a family member agreed to buy $12 million in the sale, and his own filing shows 105,263 shares bought at $95.00, about $10.0 million.³ At $68.97, buyers at $95 are about 27% under water.⁴

Earlier, on April 8, 2026, Intel paid $14.2 billion in cash to buy back Apollo's 49% stake in its Ireland factory venture, regaining full ownership.¹ It paid with cash, short-term investments and a $6.5 billion term loan.²

At $68.97, Intel's 5,315 million shares are worth about $367 billion.¹ That is about 69 times the fourth-quarter adjusted profit target taken over a full year, and about 33 times the third quarter's adjusted profit on the same basis.² The stock fell 27.8% from its October 28 close of $95.525 to $68.97 at 8:17 a.m. Eastern on October 30, while the S&P 500 fund fell 1.4% over the same span.³

Intel's own forward case, stated as goals: it expects strong data center demand into the fourth quarter and beyond, and says it will keep making disciplined investments in capacity and working capital to increase supply.¹ It forecasts full-year 2026 adjusted operating expenses of $16.3 billion.² It committed in the second quarter to finish developing its Intel 14A process, but says the scale and pace of factory expansion will depend on committed customer demand for 14A.³

The strongest bull case is that Intel is limited by supply in its most profitable business, not by demand. Data center sales rose 78% on 54% higher server prices, the unit earned $3.0 billion in a quarter, and the chief executive calls Xeon demand extraordinary.¹ Even the weaker forecast sits above a year ago, cash and short-term investments exceed debt, and operating cash flow so far this year has more than doubled.² If the Israeli plant restarts on time and supply catches up, the fourth-quarter forecast could prove cautious, as the third-quarter one did.³

The strongest bear case, in order of weight, starts with the client unit: it is the largest business, and its slump is forecast to deepen in the fourth quarter and last into 2027.¹ Second, the adjusted margin is heading back to 38.0%, and the Israeli accident adds costs whose size Intel cannot yet estimate.² Third, the foundry unit still lost $1.85 billion in the third quarter, and most of its $411 million of outside revenue came from a contract that will not recur.³ Fourth, each share owns a smaller slice, with diluted shares up about 17% and more stock possible.⁴ Last, Mobileye's estimated value is less than 10% above its book value, so another goodwill charge is possible.⁵

The dated checks come in order. Intel expects the Kiryat Gat plant to resume by the end of October 2026.¹ The fourth-quarter report, Intel's next quarterly results, will test the $15.0 billion to $16.0 billion range and the 38.0% adjusted margin.² Classiq is expected to close in the first half of 2027, the same stretch through which Intel expects the personal computer slowdown and the accident's costs to last.³

What would prove the cautious reading wrong is revenue near or above $16.0 billion with the adjusted margin above 38.0%, plus a restart in Israel by the end of October 2026, as Intel expects.¹ What would prove the bullish reading wrong is revenue below $15.0 billion or a margin below the forecast, which would mean the personal computer slump and the accident cost more than Intel planned.²

Our call is that Intel's stock will not close back above $95, the August sale price, in the near term. Getting there means rising about 38% from $68.97 while Intel expects adjusted profit per share to fall by more than half from the third quarter to the fourth.¹ The stock was already falling before this report, down 25% from its September 24 close, and Intel says the accident's costs and the personal computer slowdown last through the first half of 2027.² Nothing in the filings is dated to land before then that could reverse a forecast cut of this size, so we expect the gap to stay open.

Intel says it is unable to reasonably estimate the financial impact of the mid-October 2026 accident at Kiryat Gat, so the cost built into the fourth-quarter margin forecast is not given.¹ The plant was expected to resume by the end of October 2026.²

How far the forecast fell short of analysts' estimates is not known: the background notes Bloomberg's report of a miss, but no source we read gives the consensus figure itself.

Intel held an earnings call on its third-quarter results, but we found no call transcript, so any answers on the size of the server supply gap or the 2027 client outlook are not in this report.

The forecast gives one company-wide revenue range and does not split it between the client, data center and foundry units.

Intel calls Xeon demand extraordinary and says adding supply is the priority, but the filings put no dollar figure on the sales it is missing.

Most of the foundry unit's $411 million of outside revenue came from a contract Intel calls non-recurring, and the filing does not name the customer.