Intel beat expectations but remains Underweight, with target price raised to $45

Overview

This is a J.P. Morgan company research report on Intel's 1Q26 results and 2Q26 outlook. The report acknowledges that Intel's near-term fundamentals are clearly better than expected: strong DCAI demand, improved 18A yields, and better supply driving revenue upward revisions, while the company has also repeatedly raised capital expenditure-related expectations. However, the report's core view remains cautious because part of the earnings improvement came from inventory and one-off factors, and the company still faces mid-term challenges including weaker PC demand, server CPU share loss, higher 2H costs, Foundry losses, and uncertainty around external customers.

Core views

The core view of the report is that Intel's near-term results and guidance beat expectations, but the stock may still underperform semiconductor peers over the next 12-18 months. DCAI is in a structural upcycle, but AMD and hyperscaler in-house chips based on ARM architecture may continue to create share pressure; current CCG performance is more driven by replenishment from low inventory, and after restocking ends it may again weaken with end demand; gross margin declines from 41.0% in Q1 to 39.0% in Q2 guidance, and subsequent recovery depends on 18A yields, pricing, and cost control; while Foundry's 18A/14A yield progress is positive, there is still timing uncertainty around breakeven and scaling with external customers.

Analysis framework

The report uses earnings decomposition, segment revenue and margin analysis, valuation multiples, peer comparison, and a relative rating framework. The analysis focuses on the gap between 1Q26 actual results and J.P. Morgan and market expectations, the magnitude of 2Q26 guidance relative to market expectations, DCAI/CCG/Foundry segment performance, gross margin bridge, future EPS revisions, and Intel's expected performance relative to companies within the semiconductor group.

Methodology notes

• Valuation methodsP/E multiple valuation

  Valuing the target price based on exit-2026 earnings power

  The $45 target price is based on roughly $1.40 of exit-2026 earnings power and uses a peer multiple range of about 25-35x; elsewhere in the report, a 25-30x multiple framework is mentioned.

• earnings_reviewbeat-and-raise analysis

  Comparison of actual results, market expectations, and guidance

  The report compares 1Q26 revenue, gross margin, operating margin, and EPS against J.P. Morgan estimates and market expectations to assess the magnitude of the beat, and uses 2Q26 revenue and gross margin guidance to evaluate near-term trends.

• segment_analysisbusiness segment margin analysis

  Decomposing growth quality by CCG, DCAI, and Intel Foundry

  The report distinguishes between genuinely strong DCAI demand, CCG driven by inventory replenishment, and Foundry still operating at a loss, avoiding treating all revenue beats as equally sustainable.

• relative_ratingrelative sector call

  An Underweight rating relative to performance within the semiconductor group

  Underweight does not necessarily mean the stock price will fall in absolute terms, but rather that Intel may participate in sector gains more slowly than peers over the next 12-18 months.

Asset mapping & comparison

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

• INTC.US

  Core coverage target

  Strengths

  Strong DCAI demand, improving server CPU cycle, better-than-expected progress in 18A yields, Q2 supply ramp supports upward revenue revisions, and the ASIC business offers long-term optionality.

  Weaknesses

  CCG performance depends on inventory replenishment, server CPU faces competition from AMD and ARM solutions, Foundry is still deeply loss-making and external customer scaling is still some time away, and 2H gross margin faces cost pressure from memory, substrates, and t-glass.

  Comparison

  The report believes Intel may still underperform companies within the semiconductor group over the next 12-18 months; relative to AMD, ARM-based in-house chips, and Broadcom/Marvell-style ASIC businesses, Intel remains in a catch-up and validation phase.

  Risks

  If technology roadmap execution exceeds expectations, the PC and server cycles recover faster, or Foundry brings in external customers more quickly, the Underweight view faces upside risk.

• AMD.US

  Competitor in server CPU and compute markets

  Strengths

  It puts share pressure on Intel in server CPU and data center computing, and is an important reference in the report's view that Intel may still lose share over the next 12-18 months.

  Weaknesses

  The report does not elaborate on AMD's own risks or financial details.

  Comparison

  Although Intel DCAI has improved, the report still believes AMD and ARM-based hyperscaler silicon will continue to constrain Intel's share and pricing.

  Risks

  If Intel's product roadmap improves faster than expected, AMD's relative competitive advantage may narrow.

Key data

• 1Q26 revenue$13.58BUp 7.2% YoY and down 0.7% QoQ, above J.P. Morgan's estimate of $12.23B and market expectations of $12.36B.
• 1Q26 adjusted EPS$0.29Above market expectations of $0.01; the report notes that about $0.06 came from a one-time I&O gain from the reversal of Apollo SCIP fees, implying normalized EPS of about $0.23.
• 1Q26 gross margin41.0%Above the market's roughly 36.5%, the highest level in more than five years, driven by inventory release, mix improvement, pricing, and improved 18A yields.
• 2Q26 revenue guidance$14.3BGuidance midpoint implies +5% QoQ and +11% YoY, above the market's roughly $13.0B.
• 2Q26 gross margin guidance39.0%Down about 200 bps from Q1, due to the non-repeat of Q1 inventory gains and dilution from the early 18A ramp.
• DCAI 1Q26 revenue$5.05BUp 7% QoQ and about 22% YoY, with operating margin reaching 30.5%.
• CCG 1Q26 revenue$7.73BDown about 6% QoQ, better than the prior expectation of -12% to -14%, but believed to be mainly supported by inventory replenishment and pull-ins.
• Intel Foundry 1Q26 revenue$5.42BUp 20% QoQ, with an operating loss of about -$2.4B, narrowing by about $70M QoQ.
• CY26 revenue/EPS estimate$59B / $1.14Raised from the previous $54.8B / $0.61.
• Cash and equivalentsabout $32.8BCash and equivalents were about $32.8B at the end of 1Q26; operating cash flow for the quarter was $1.1B and capital expenditures were about $5B.

Impact & implications

The implication for the investment view is that Intel's near-term earnings expectations have been revised upward, and improvements in DCAI and advanced process yields help boost market confidence, but the current stock price is already well above J.P. Morgan's target price and several medium-term issues remain unresolved. The report is more inclined to view the earnings beat as a factor for estimate revisions rather than a signal for a rating upgrade; investors need to distinguish between short-term revenue elasticity driven by supply recovery and inventory replenishment, and the differences in true end demand, market share, gross margin, and Foundry commercialization progress.

Risks

• Intel's technology and product roadmap execution may be better than expected, potentially achieving technology parity or leadership earlier, thereby creating upside risk to the rating.
• The industry downturn may be shorter than expected, and the PC and data center server CPU markets may recover faster, potentially driving upside to revenue and margins.
• Intel Foundry Services customer adoption may be higher than expected, which could help Foundry scale revenue faster and improve losses.
• 2H cost inflation, dilution from the early 18A ramp, and cost pressures from memory and substrates may cause gross margin recovery to come in below expectations.
• AMD, NVDA Vera, Google Axion, AWS Graviton, and other ARM/in-house chips may continue to compress Intel's server CPU share.

What to watch

• Whether 2Q26 revenue reaches the $14.3B guidance midpoint, and whether DCAI continues to achieve double-digit QoQ growth.
• Whether CCG sell-in and end demand weaken again after channel replenishment is completed.
• The pace of 18A yield maturity, the degree of gross margin dilution from 18A ramp, and whether year-end exit gross margin can reach 41%+.
• Whether there is meaningful progress in Foundry external customer signings, advanced packaging revenue opportunities, and high-volume wafer customers.
• Whether CY26 EPS can approach the revised $1.14, and whether the exit-2026 earnings power assumption of $1.40 holds.
• The impact of AMD and ARM-based hyperscaler silicon on Intel's share in the server CPU market.