Intel Earnings Call: AI Momentum Amid Supply Strain

Intel ((INTC)) has held its Q4 earnings call. Read on for the main highlights of the call.

Intel’s Earnings Call Balances AI-Driven Momentum With Near-Term Strain

Intel’s latest earnings call painted a cautiously optimistic picture: the company is clearly executing on major product and manufacturing milestones and continues to beat its own near-term financial guidance, yet faces significant headwinds from supply constraints, margin pressure, and deep foundry losses. Management leaned heavily into a narrative of multi-year recovery and AI-driven growth, while being unusually explicit about execution risks, inventory misalignment, and a weak start to 2026 that investors will need to look through to stay focused on the longer-term turnaround.

Q4 Revenue Beat Extends Streak of Outperformance

Intel reported fourth-quarter revenue of $13.7 billion, landing at the high end of guidance and marking the fifth consecutive quarter of revenue coming in above its own forecast. This consistency offers investors some reassurance around demand resilience and the company’s ability to manage expectations, especially as it navigates a complex transition toward AI-centric computing and foundry services. While not a blowout quarter, the steady string of beats suggests Intel is rebuilding operational discipline after several years of volatility.

Margins Improve and EPS Tops Expectations

Profitability metrics also surprised to the upside. Non‑GAAP gross margin in Q4 reached 37.9%, roughly 140 basis points ahead of guidance, while non‑GAAP EPS came in at $0.15 versus expectations of $0.08. The margin outperformance reflects a mix of cost controls and better product economics, even as the company absorbs the cost of advanced node ramps. However, investors should note that this margin strength is not expected to carry into Q1, with management already flagging near-term compression as supply constraints and mix headwinds build.

Cash Generation Rebounds in the Quarter

Intel delivered a strong finish to the year on cash metrics, generating $4.3 billion in operating cash flow in Q4. With gross capital expenditures of $4 billion, the company still managed to post positive adjusted free cash flow of $2.2 billion for the quarter. This Q4 strength partially offsets concerns about the full-year picture, signaling that Intel can generate meaningful cash even while investing heavily in fabs and leading-edge process technology when demand and mix align favorably.

Balance Sheet Strengthens Amid Strategic Capital Inflows

The company exited 2025 with $37.4 billion in cash and short-term investments, providing a sizable liquidity cushion to fund its ambitious foundry and AI roadmaps. A notable highlight was the closing of a $5 billion strategic investment from NVIDIA in Q4, alongside other monetization initiatives that helped Intel repay $3.7 billion of debt. These moves underscore a deliberate effort to reinforce the balance sheet and bring in external capital partners to help share the burden of massive manufacturing investments.

Core Ultra Series 3 Fuels Client Product Momentum

On the client side, Intel showcased early momentum for its Core Ultra Series 3 (Panther Lake) processors. The company delivered three Series 3 SKUs ahead of its prior commitment to ship just one, and these chips are set to power more than 200 notebook designs. Intel emphasized tangible performance and efficiency gains: up to 27 hours of battery life, roughly 70% generation-on-generation graphics improvement, and 50%–100% better benchmark performance versus rival offerings. This positions Intel competitively in AI‑capable PCs and premium laptops, an important growth vector as the PC market seeks new upgrade drivers.

Data Center & AI Infrastructure Posts Fastest Growth in a Decade

Intel’s Data Center and AI (DCAI) business posted revenue of $4.7 billion in Q4, up 15% sequentially and described by management as the fastest sequential growth for the segment this decade. The company sees CPUs playing a more central role in AI infrastructure, particularly for inference and hybrid workloads alongside accelerators. Upcoming ramps of Granite Rapids and mainstream Xeon processors are expected to leverage this trend. For investors, the data center performance is a critical proof point that Intel remains relevant in AI infrastructure despite intense competition.

Custom ASIC and Silicon Business Hits $1 Billion Run Rate

Intel’s custom ASIC business, a key component of its broader silicon and foundry strategy, showed strong traction. Revenue from custom ASICs grew more than 50% year over year in 2025 and 26% sequentially, reaching an annualized revenue run rate above $1 billion in Q4. This underscores growing customer appetite for tailored silicon solutions, including AI accelerators and networking chips, and suggests Intel is successfully carving out a niche in a market where customization and co‑design are becoming increasingly important.

Foundry Momentum and Intel 18A Milestones

The company highlighted significant progress in its foundry and advanced process roadmap, most notably shipping the first products built on Intel 18A, its leading-edge U.S.-manufactured node featuring gate-all-around transistors with backside power delivery. Intel Foundry revenue rose 6.4% sequentially to $4.5 billion, while EUV wafer mix climbed from less than 1% in 2023 to more than 10% in 2025. These milestones demonstrate that Intel’s push to re-establish itself as a top-tier foundry is gaining operational traction, even though the financials remain deeply in the red as early-node yields ramp.

Cost Discipline Supports Turnaround Efforts

Across the full year, Intel kept non‑GAAP operating expenses to $16.5 billion, down 15% versus 2024. Management credited reorganization and simplification initiatives for the sizable reduction, which is particularly important given the capital intensity of the foundry strategy and the current margin headwinds. For investors, this level of cost discipline is a necessary counterweight to heavy fab investments and provides some cushion as the company works through supply bottlenecks and yield challenges.

Acute Supply Constraints Cap Near-Term Upside

Despite robust demand signals, Intel repeatedly stressed that supply constraints are significantly limiting its ability to convert demand into revenue. Internal buffer inventory has been exhausted, and management described Q1 2026 supply constraints as the most acute period, contributing to Q1 revenue guidance that falls below typical seasonal patterns. The inability to fully serve customers—particularly in high-growth AI-related segments—poses a near-term cap on upside and elevates the execution bar for the rest of the year.

Weak Q1 Guidance Signals Margin and Earnings Pressure

Guidance for the first quarter of 2026 reflects the strain from supply and mix. Intel expects revenue between $11.7 billion and $12.7 billion, with a midpoint of $12.2 billion, alongside a non‑GAAP gross margin of about 34.5% and breakeven non‑GAAP EPS. This implies sequential pressure on both margins and earnings versus Q4, as the company grapples with constrained supply, product mix issues, and the up-front costs of ramping advanced manufacturing nodes. It sets a cautious tone for the start of the year, even as management remains confident in second-half improvement.

Negative 2025 Free Cash Flow and Foundry Losses Weigh on Story

For the full year 2025, Intel posted negative adjusted free cash flow of $1.6 billion, though the second half generated a positive $3.1 billion, underscoring the volatility tied to heavy investment cycles. The foundry segment remains a major financial drag: Intel Foundry recorded a Q4 operating loss of $2.5 billion, $188 million worse than the prior quarter, largely due to the early ramp of Intel 18A. These figures highlight the central tension of Intel’s strategy—significant up-front losses in pursuit of long-term, structurally higher revenue and strategic relevance as a global foundry player.

Product Mix and Outsourcing Pressure Intel Products Profitability

Within the Intel Products division, operating profit declined by about $200 million quarter over quarter. Management attributed this to a greater mix of outsourced client products and typical seasonal increases in operating expenses. The shift toward outsourced wafers is partially dilutive to gross margin, reflecting the trade-off between internal capacity constraints and the need to meet customer demand. This mix dynamic adds another layer of complexity to Intel’s margin profile while its own fabs ramp to competitive yields.

Memory Shortages and Component Inflation Create External Headwinds

Industry-wide tightness in DRAM, NAND and substrates, combined with rising component prices, is creating additional headwinds. Intel cautioned that these supply and pricing pressures could limit revenue opportunities and squeeze client gross margins, as some OEMs and smaller customers scramble to secure adequate memory supply. While these are largely industry-wide issues, they exacerbate Intel’s own supply and inventory challenges and could constrain upside in segments that might otherwise benefit from strong AI-PC and data center demand.

Inventory Misalignment Hampers Shipment Flexibility

The company ended the period with $11.6 billion of inventory, but management emphasized that a significant portion of it is not aligned with current demand patterns. This misalignment is forcing “hand-to-mouth” fulfillment and constraining shipments in higher-demand products and configurations. For investors, this highlights a key operational risk: it is not just the volume of inventory that matters, but the mix and location relative to real-time customer needs.

Altera Deconsolidation Hits ‘All Other’ Segment

Intel’s “All Other” segment, which includes businesses outside its core product and foundry operations, saw revenue fall to $574 million in Q4, down 42% sequentially, primarily due to the deconsolidation of Altera. The category posted a modest operating loss of $8 million. While not central to the overall investment thesis, the move reshapes segment reporting and underscores Intel’s focus on clarifying its structure around products, foundry, and strategic partnerships.

Yield and Throughput Improvements Remain Critical Execution Risks

Management acknowledged that yields on new nodes such as Intel 18A are improving but still below the company’s leadership targets. Yield and throughput improvements were repeatedly flagged as critical to meeting both customer demand and margin ambitions. Until these metrics move closer to target, Intel will continue to face a profitability drag from early node ramps and will be more vulnerable to supply shocks, raising the stakes for execution in its manufacturing transformation.

Guidance Points to a Choppy 2026 With Gradual Improvement

Looking ahead to 2026, Intel guided for Q1 revenue of $11.7–$12.7 billion, a non‑GAAP gross margin near 34.5%, and breakeven non‑GAAP EPS, along with an approximate 11% tax rate and a Q1 share count around 5.1 billion. For the full year, the company is targeting roughly $16 billion in operating expenses, capital expenditures that are flat to slightly down and more weighted toward the first half, and a return to positive adjusted free cash flow. Intel plans to retire $2.5 billion of debt maturities and expects fab supply to begin improving in Q2, with Intel Foundry revenue projected to grow double-digits sequentially in Q1 and noncontrolling interests and share count rising into 2027. The guidance paints a picture of a transition year: a weak first quarter, gradual supply and margin recovery, and increasing foundry contributions, but with execution and supply risks still front and center.

In sum, Intel’s earnings call presented a nuanced story: operational and product wins in AI PCs, data center, ASICs, and advanced nodes are real and increasingly visible in the numbers, yet they are being partially overshadowed by acute supply constraints, margin pressure, negative recent free cash flow, and heavy foundry losses. Investors attracted to the long-term AI and foundry thesis must be willing to tolerate near-term volatility and execution risk, while those focused on short-term earnings may find the guidance and supply narrative challenging. The coming quarters will test whether Intel can convert its technological progress into sustained financial improvement.