Intel Q2 significantly beat expectations; Bernstein raises target price to $110 but maintains Market-Perform

Overview

After reviewing Intel's 2026 second-quarter results, Bernstein believes the company delivered a very strong quarter, with revenue, EPS, and gross margin all exceeding market expectations. The core drivers were higher client-side ASPs and DCAI server demand that was significantly stronger than supply. The company's Q3 guidance for revenue, EPS, and gross margin also came in above market expectations, indicating that the improvement in server demand and supply continues. Even so, the report maintains a Market-Perform rating because PC demand adjustment, a sharp rise in capex, potential financing discussions, and valuation pressure have not been fully resolved.

Core views

The core view is that Intel's fundamentals and market narrative are improving, especially as server demand, 18A/14A progress, and advanced packaging partnership opportunities make the market more constructive on its role as a manufacturing partner; but that does not mean the risks have disappeared. The tailwinds that previously made the PC business stronger than expected may be nearing an end, and Q4 could see a more noticeable drag. At the same time, the company raised its FY26 capex outlook to above $20B and suggested FY27 would be significantly higher than 2026, which could intensify market concerns about cash needs and capital markets financing in the short term. Therefore, the report raises earnings forecasts and the target price, but keeps the rating neutral.

Analysis framework

The report uses a combination of earnings breakdown, guidance comparison, segment operating performance, supply-demand assessment, and valuation multiples: it first compares Q2 actual revenue, EPS, and gross margin with market expectations and company guidance, then breaks down changes in revenue and margins across business segments such as CCPG, DCAI, Intel Foundry Services, and All Other, then evaluates Q3/Q4 supply-demand trends, PC adjustment, process and packaging progress, and finally updates the target price based on an EV/Sales multiple applied to average FY27/28 sales.

Methodology notes

• Valuation methodsEV/Sales multiple method

  About 8x EV/Sales, based on average FY27/28 sales

  Bernstein applies an EV/Sales multiple of about 8x to INTC, using estimated average FY27/28 sales of about $71.8B to derive a $110 target price; the multiple itself is unchanged, and the higher target price mainly comes from upward revisions to revenue and EPS forecasts.

• Earnings analysisSegment operating breakdown

  Break down revenue and margins by CCPG, DCAI, Intel Foundry Services, and All Other

  The report assesses growth quality through changes in revenue, YoY growth, QoQ growth, and operating margins by segment. DCAI and server demand are the main positives, CCPG is supported in the short term by ASP and high-end SKU mix but faces PC adjustment risk, and Foundry losses remain large though improved sequentially.

• Expectation comparisonResults and guidance versus market expectations

  Differences between actuals and management guidance relative to Street consensus

  The report focuses on comparing Q2 actual revenue, EPS, and gross margin as well as Q3 guidance for revenue, EPS, and gross margin against consensus expectations, in order to judge the magnitude of the earnings beat and changes in the forward narrative.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• INTC.US

  Core covered asset

  Strengths

  Q2 results significantly beat expectations, DCAI server demand is strong, gross margin was above expectations, and progress in 18A/14A and advanced packaging is improving the market narrative.

  Weaknesses

  The PC business may be entering an adjustment, Intel Foundry Services remains deeply loss-making, and the capex path and financing needs are uncertain.

  Comparison

  Relative to market consensus expectations, Intel outperformed across Q2 revenue, EPS, gross margin, and Q3 guidance; however, Bernstein still believes the valuation is not cheap, so it did not upgrade the rating.

  Risks

  Declining PC demand, capex above expectations, possible future financing, process roadmap delays, gross margin pressure, and market share losses.

Key data

• Q2 revenue$16.1BAbove market expectations of $14.4B and company guidance of $14.3B.
• Q2 non-GAAP EPS$0.42Above market expectations of $0.21 and company guidance of $0.20.
• Q2 non-GAAP gross margin41.8%Above market expectations of 39.2% and company guidance of 39.0%, driven by higher revenue and improved product mix.
• CCPG revenue$8.877BUp about 13% YoY and about 15% QoQ, above market expectations of $7.993B, mainly driven by client ASP and high-end SKU mix.
• DCAI revenue$6.262BUp about 59% YoY and about 24% QoQ, above market expectations of $5.541B, with demand clearly exceeding supply.
• Intel Foundry Services revenue$5.765BUp about 31% YoY and about 6% QoQ, with an operating loss of $2.089B and operating margin still at -36.2%.
• Q3 guidanceRevenue $16.3B, EPS $0.38, gross margin 42.0%Respectively above market expectations of $15.1B, $0.27, and 40.2%.
• FY26 capital expenditure>$20BManagement raised its FY26 capex outlook and said FY27 capex would be significantly higher than 2026.
• FY26 revenue forecast revisionRaised from $57.6B to $62.5BMainly due to stronger server and packaging revenue.
• FY27 revenue forecast revisionRaised from $63.3B to $67.7BPartially offset by PC headwinds in 2027.
• FY28 revenue forecast revisionRaised from $68.8B to $75.9BReflects stronger mid-term assumptions for server and packaging businesses.
• Target priceRaised from $100 to $110Based on about 8x average FY27/28 sales, with Market-Perform maintained.

Impact & implications

For investors, the report conveys a signal of 'improving fundamentals but still elevated risk.' In the short term, strong server demand, Q3 guidance above expectations, and progress in process technology and packaging may continue to support the stock narrative. In the medium term, if DCAI supply ramps, advanced packaging customer traction, and 18A/14A progress materialize, Intel's revenue and earnings forecasts could continue to be revised upward. But if the PC adjustment deepens, capex returns remain unclear, or financing dilution concerns intensify, room for valuation expansion may be limited.

Risks

• A PC correction may show up in Q4, and the tailwinds that previously made the Client business stronger than expected may weaken.
• FY26 capex is rising above $20B, and FY27 could be significantly higher than 2026, creating uncertainty around capital returns and cash needs.
• Management has not explicitly ruled out future capital markets financing, which could trigger dilution or balance sheet concerns.
• Intel Foundry Services operating margin remains negative; although improved sequentially, the scale of losses is still large.
• If progress in 18A, 14A, or the packaging business falls short of expectations, the current improving manufacturing partner narrative could reverse.
• The macro environment, roadmap delays, gross margin pressure, or market share losses could all weigh on achievement of the target price.

What to watch

• Whether Q3 revenue, EPS, and gross margin deliver on the company's above-consensus guidance.
• Changes in server revenue growth and margins after DCAI supply constraints ease in Q4.
• The magnitude of the PC market adjustment and whether CCPG sees a clear sequential decline in Q4.
• Execution progress on 18A, 14A PDKs, and the commitment to 2028 14A HVM ramp.
• Whether customer traction and revenue contribution from advanced packaging, especially EMIB-T, become more meaningful.
• The detailed plans, funding sources, and expected returns for FY26 and FY27 capex.
• Whether management further clarifies potential capital markets financing or other funding tools.