Intel's Q2 Report Poised to Reveal if AI Demand Can Sustain Its Stock Surge

Intel (NASDAQ:INTC) is gearing up to report its second-quarter earnings on Thursday, and all eyes will be on whether the chip giant can sustain the momentum that's propelled its stock almost threefold this year. The AI frenzy has injected new life into processor demand, creating a fresh narrative around Intel's turnaround efforts that investors have eagerly embraced.

Analysts anticipate Intel to post its fastest revenue climb in roughly six years, pushed by growing demand for central processing units crucial for AI workloads. The data center and AI business segment is expected to surge around 36%, signaling that Intel's chips remain a key player in powering machine learning applications. It's a far cry from the stagnant sales the company faced in prior quarters amid a slumping PC market.

Last 4 Quarters for Intel >>

There's also buzz surrounding Intel's contract manufacturing division, which has lately gained traction with deals like a notable partnership with Tesla. The market remains curious about Intel's potential to win big-ticket clients-most notably a rumored agreement to produce processors for Apple, a pact President Donald Trump mentioned earlier this year but hasn't been officially confirmed by either party.

Securing an Apple deal would mark a significant win, boosting not only Intel's foundry revenue but also its standing as a competitive contract chipmaker challenging the likes of TSMC and Samsung. However, uncertainties linger as such a relationship hasn't yet materialized, keeping investors cautious.

Despite the rally, Intel's shares have pulled back more than 25% from their late June peak amid broader tech sell-offs, yet they still boast a staggering 185% gain year-to-date. This volatility reflects the ongoing balancing act between optimism over AI-driven growth and wariness around persistent challenges, including weaker demand for traditional PC chips and slim profit margins compared to Intel's past highs.

Bernstein analysts captured this sentiment well, noting improved confidence in Intel's outlook but flagging that fundamental headwinds remain. For instance, heavy investments in foundry capabilities and the costs tied to new manufacturing technologies continue to weigh on margins, which TD Cowen expects to come in around 38.8% this quarter.

Interestingly, Intel benefited from tight factory capacity in the last quarter, managing to sell inventory that was previously sidelined, including older and lower-spec chips. Whether that trend holds or fades could influence the upcoming performance metrics.

Market forecasts peg Intel's Q2 revenue at approximately $14.42 billion, representing a 12% year-over-year increase, with adjusted earnings around 21 cents per share. The data center and AI segment alone is expected to generate $5.37 billion in sales, underscoring the significant role these newer growth areas are playing amidst a transforming chip landscape.

What will be revealing is if Intel's numbers confirm that AI fueling is sturdy enough to offset legacy business pressures. The company's ability to keep expanding its foundry services and secure marquee partnerships might shape its narrative well beyond this earnings call.