Intel’s stock (NASDAQ: INTC) has experienced a dramatic ascent over the past 12 months, with shares more than quadrupling to approximately $94. This remarkable performance is particularly noteworthy for a mega-cap company, especially one that was perceived by some to be trailing in the artificial intelligence (AI) chip race just two years ago. The stock’s trajectory reached a peak on April 24, when it saw its largest single-day gain since 1987, jumping 24% following the company’s first-quarter earnings report. This surge has continued, prompting many investors to question the underlying drivers of Intel’s impressive rally.
Key Factors Fueling Intel’s Stock Surge
Several developments at the chipmaker appear to have captured investor attention and contributed to the substantial increase in Intel’s stock price:
1. A CPU Resurgence in the AI Era
While graphics processing units (GPUs) from competitors like Nvidia have dominated the AI narrative, central processing units (CPUs) are regaining prominence, and Intel is strategically positioned to capitalize on this shift. In the first quarter, Intel’s data center and AI segment reported revenue of $5.1 billion, marking a 22% year-over-year increase. This represents a significant acceleration from the approximately 9% growth observed in the fourth quarter of 2025. The company also stated that its AI-related businesses now constitute 60% of its revenue and experienced 40% year-over-year growth. CEO Lip-Bu Tan noted during the first-quarter earnings call that customers are increasingly deploying server CPUs in conjunction with accelerators, with a ratio shifting back towards CPUs. This trend is reportedly driven by agentic AI workloads, which require extensive CPU processing alongside GPUs to manage and orchestrate tasks across infrastructure. Demand for these CPUs is now reportedly exceeding Intel’s production capacity.
2. Improving Profitability Margins
Beyond revenue growth, Intel’s profitability metrics have shown considerable improvement. The company’s non-GAAP (adjusted) gross margin for the first quarter reached 41%, an increase from 39.2% in the same period last year and significantly above its own guidance by approximately 650 basis points. Furthermore, Intel’s adjusted operating margin expanded from 5.4% to 12.3%. These improvements contributed to a remarkable 156% year-over-year increase in adjusted net income, reaching about $1.5 billion. While the company reported a GAAP net loss of $3.7 billion attributable to the company, this was primarily due to a $4.1 billion restructuring and impairment charge, largely related to its Mobileye reporting unit, rather than operational performance.
3. Strategic Backing from Major Players
Investor confidence has also been bolstered by the significant strategic backing Intel has secured. Last year, the U.S. government converted CHIPS Act and Secure Enclave funds into an equity stake of roughly 10%, making it the company’s largest shareholder. Nvidia subsequently invested $5 billion, and SoftBank contributed an additional $2 billion. More recently, Intel has announced collaborations with Alphabet’s Google for its Xeon processors, the selection of its Xeon 6 as the host CPU for Nvidia’s DGX Rubin NVL8 systems, and its participation in the Terafab semiconductor project alongside SpaceX, xAI, and Tesla. These developments provide crucial validation and, in several instances, new capital for a company that was seeking renewed business momentum.
4. Progress in Manufacturing Operations
Intel’s manufacturing capabilities, a long-standing area of investor skepticism, are now showing signs of progress. In the first quarter, Intel’s foundry revenue grew 16% year over year to $5.4 billion, a substantial acceleration from the roughly 4% growth seen in the fourth quarter of 2025. Notably, the company announced that its 18A process node has entered high-volume manufacturing. CEO Tan indicated that 18A wafers are performing ahead of internal projections and that the next-generation 14A node is maturing faster than 18A did at a comparable stage. The demand for Intel’s advanced packaging solutions has also shifted from expectations in the hundreds of millions to billions of dollars annually.
Concerns of an Overbought Stock
Despite the positive developments, there are indications that Intel’s stock may have outpaced its fundamental valuation. After more than tripling over the past year, Intel’s market capitalization stands at approximately $470 billion. The stock’s forward price-to-earnings ratio is currently in the high 80s, suggesting a high valuation. Compounding these concerns is the company’s significant capital expenditure. In the first quarter, Intel reported negative adjusted free cash flow of $2 billion. This combination of a stock priced for near-perfect execution and substantial ongoing investment raises questions about whether the recent rally has become overly enthusiastic. While the underlying business is demonstrably improving and the growth opportunities are substantial, at current valuation levels, even strong performance might not be sufficient to justify further significant gains.
