Intel’s (INTC) artificial intelligence (AI) turnaround is finally showing up in the numbers, and that is one of the key reasons why I remain bullish on INTC despite the stock’s massive rally. Shares have surged an incredible 114% over the past month following a strong Q1 earnings report, improving AI-related demand trends, and growing confidence in Intel’s 18A manufacturing roadmap.
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Forget margin or options. Here's how the pros trade NVDAFor years, the chip giant has struggled with execution issues, market share losses, and concerns that it was falling behind in the AI race. However, the latest quarter suggests Intel may finally be turning a corner. Data center demand is accelerating, AI server CPU demand remains extremely strong, and management noted that supply constraints prevented even higher revenue growth. At the same time, Intel’s foundry ambitions and AI PC strategy are beginning to gain traction with customers and investors alike.
While the rally has made valuation less attractive on traditional metrics, I still believe Intel has further upside as its AI-driven turnaround continues to unfold.
Q1 Was a Real Inflection Point
Intel’s first-quarter 2026 results were much stronger than expected. Revenue rose 7% year-over-year to $13.58 billion, beating consensus by more than $1 billion. Non-GAAP earnings per share (EPS) came in at $0.29, far above expectations near breakeven, while the gross margin of 41% was also well ahead of forecasts.
The key driver was Data Center and AI, where revenue increased 22% year-over-year to $5.1 billion. Demand for server central processing units (CPUs) was so strong that management said revenue could have been more than $1 billion higher without supply constraints. That is an important signal. Intel is not just benefiting from a cyclical recovery; it is seeing real AI-driven demand for Xeon.
Xeon Is Becoming More Important in AI Infrastructure
The AI market has been dominated by graphics processing units (GPUs), but inference and agentic AI workloads require more than raw accelerator power. They need CPUs for routing, orchestration, tokenization, batching, and workload coordination.
That shift matters for Intel. Management noted that CPU-to-GPU ratios are shifting from roughly 1:8 in training workloads to 1:4 in inference, and potentially closer to parity in agentic AI environments. If this trend continues, Xeon becomes a larger attach opportunity in every AI server deployment, even when GPUs come from Nvidia (NVDA) or other vendors.
Intel’s Xeon 6 was selected as the host CPU for Nvidia’s DGX Rubin NVL8 systems, and the company also expanded partnerships with Alphabet (GOOGL), SambaNova, and others. These relationships suggest Intel remains deeply relevant in the AI data center stack.
18A and Foundry Could Change the Story
Intel’s foundry turnaround is another major reason to stay bullish. The company’s 18A process is progressing better than expected, with yields improving and Panther Lake on track. 18A combines RibbonFET gate-all-around transistors with PowerVia backside power delivery, positioning Intel to compete more seriously in advanced-node manufacturing.
The foundry business is still losing money, but it could become a second long-duration growth engine if Intel secures more external customers. Recent reports that Apple (AAPL) has held exploratory talks with Intel about foundry services add to the bull case, even though those discussions are still early-stage.
Intel also has strategic importance as the only scaled Western advanced-node foundry. With government support, CHIPS Act funding, and demand for supply-chain diversification, Intel Foundry has value beyond near-term earnings.
AI PCs Add Another Growth Lever
The AI personal computer (PC) cycle is also becoming more important. Windows 10 end-of-life, enterprise refresh demand, and the adoption of on-device AI workloads should support demand for Core Ultra and future 18A-based client processors.
Client Computing revenue rose 1% year-over-year to $7.7 billion in Q1, and AI PC revenue grew 8% quarter-over-quarter, now representing more than 60% of the client CPU mix. Even if total PC unit growth remains modest, richer AI PC configurations could support higher average selling prices and better margins.
Valuation Is Expensive, but the Re-Rating Has Logic
After the recent rally, Intel’s stock looks expensive. Its price-to-operating-cash-flow ratio is over 40, compared with a sector median near 20.
That said, traditional metrics may not fully capture the scale of the change. Intel is moving from a challenged legacy chipmaker to a potential foundry, AI infrastructure, and PC platform. If revenue accelerates, foundry losses narrow, and margins continue improving, the stock can justify a higher multiple than it carried during its period of execution issues.
The risk is that expectations have moved quickly. Supply constraints, foundry execution, gross margin pressure, and free cash flow remain concerns. However, the direction is finally positive.
Wall Street’s View
According to TipRanks, Intel carries a Hold consensus rating, with 11 Buy, 23 Hold, and three Sell ratings. Based on 37 analysts, the average 12-month price target is $81.41, implying about 34.83% downside from the last price of $124.92.
Conclusion
Intel’s turnaround is no longer just a promise. The Q1 beat, strong server CPU demand, improving 18A execution, AI PC momentum, and expanding foundry opportunity all suggest the company is entering a new phase.
The stock has already surged, and valuation risk is real. Still, I believe Intel’s AI-driven recovery is only beginning to show up in the numbers. For investors willing to tolerate volatility, I remain bullish on INTC.