Intel (INTC -28.58%) shares collapsed after the chipmaker issued weak Q4 guidance amid a slowdown in the PC market. Before its earnings report, the stock had been on a huge run, up about 150% year-to-date, benefiting from the rise of agentic artificial intelligence (AI) and the sudden surge in demand for server central processing units (CPUs).
However, even with the stock getting crushed, I still wouldn’t buy it. The semiconductor stock got way too far ahead of itself for a company that has been losing market share in the data center CPU market and losing money in its struggling foundry business. At the same time, the stock went from cheap relative to its physical assets (tangible book value) to one that looked overvalued.
Image source: The Motley Fool.
Let’s take a closer look at Intel’s Q3 report and prospects and why I still don’t think the stock is a buy even after this pullback.
$65.76-$26.31 (-28.58%)
NASDAQ · As of 4:00 PM ET 10/30/26
PC slowdown hits the stock
Intel’s Q3 results were quite solid, with revenue up 21% to $16.5 billion. However, that was a deceleration from Q2’s 25% growth and was just in line with analyst estimates, as compiled by LSEG.
Intel’s biggest growth driver was once again server CPUs, with the company seeing its strongest data center growth in 15 years. With the rise of AI agents, server CPUs have been in high demand, while supply has been tight. In fact, Intel called it one of the largest supply shortages the industry has seen
This led to Intel’s data center and AI (DCAI) revenue surging 78% to $7.3 billion in the quarter. Meanwhile, DCAI operating income more than tripled from $964 million to $3 billion.
The growth was led by newer-generation CPUs, with the company saying that since Q1, its 18A client CPUs have gone from less than 5% of revenue to nearly a third. Meanwhile, 18A costs have fallen by 40% as it’s seen continued improvements in yield and cycle time.
Intel expects the strong demand for server CPUs to continue. It sees server CPU industry unit growth of 30% in both this year and next, noting it would be higher in both years if not for supply constraints. Meanwhile, it sees CPU industry revenue climbing fivefold over the next five years from $40 billion to $200 billion.
While its data center segment was strong, Intel’s larger client computing and physical AI group (CCPG) struggled, with Q3 revenue falling 5% to $8.1 billion. Segment operating income, meanwhile, declined by 15% to $2.3 billion.
The weakness stemmed from a struggling PC market, which has seen sales decline due to higher prices (driven by skyrocketing memory prices) and IT budget constraints. Intel thinks this weakness will continue through 2027, projecting a 10% decline in units following a 12% decrease this year. This will also come with an inventory correction that will hit it the hardest in Q4 and Q1.
Adding to Intel’s woes, the company will see a $600 million revenue hit over the next two quarters due to an explosion at one of its fabs in Israel.
Intel’s foundry business, meanwhile, saw revenue soar 58% to $6.7 billion. However, the segment continues to post large operating losses, with a $1.9 billion loss in the quarter. Revenue from Intel’s other businesses dropped 30% year over year to $0.7 billion, largely due to its earlier sale of 51% of its Altera subsidiary.
Gross margins had been an issue for Intel, but they’ve nicely rebounded. Gross margin climbed 4,800 basis points to 43% in the quarter, while adjusted gross margin rose 4,100 basis points. This helped lead its adjusted EPS to surge 126% to $0.52, easily topping the $0.40 consensus.
Looking ahead, Intel projected Q4 revenue between $15 billion and $16 billion with adjusted earnings per share (EPS) of $0.25. That was well below the $0.43 EPS and $17.1 billion in sales that analysts were expecting. It projected gross margins to be around 37%.
Avoid Intel stock
Intel is seeing strong momentum in the server CPU market, and it has a big opportunity ahead as this market grows rapidly. However, the company has been losing share in the space and is expected to continue losing it to Advanced Micro Devices, ARM Holdings, and ARM-based custom CPUs.
At the same time, the company is facing heavy pressure in the PC space, which is still its largest business, and the next two quarters are likely to be rough due to inventory adjustments. And while its foundry business has also seen revenue growth pick up, the segment is still seeing significant losses.
While the stock has fallen to a more reasonable forward price-to-earnings (P/E) ratio of 30 times based on 2027 analyst estimates, I do not think Intel deserves to trade at a premium multiple given the headwinds it is facing. I’d continue to avoid Intel’s stock, as there are more attractive AI stocks out there to buy.
