Intel Corp. (INTC) raised its capital spending forecast for the year and delivered a quarterly outlook that sailed past Wall Street estimates, signaling that the breakneck buildout of artificial intelligence data centers is fueling an unexpected renaissance for its server processors. The results, released Thursday, sparked a 5% rally in the stock during extended trading, providing a much-needed reprieve after shares tumbled more than 25% from their record high in late June.

For the third quarter, the Santa Clara, California-based chipmaker projected revenue between $15.8 billion and $16.8 billion, well above the $15.10 billion consensus estimate compiled by LSEG. Adjusted earnings are expected to reach 38 cents per share, compared with analyst forecasts of 27 cents. The bullish guidance was underpinned by second-quarter results that also topped expectations: sales jumped 25.4% to $16.13 billion, while adjusted profit of 42 cents per share handily beat the projected 21 cents. Adjusted gross margin came in at 41.8%, exceeding the 38.8% estimate.

The financial outperformance is being driven by a surge in demand for central processing units, or CPUs, as the AI industry pivots from training massive models toward inference—the stage where software actually performs tasks. The rise of agentic AI, in which autonomous programs carry out multi-step workflows like coding and data retrieval on behalf of users, has placed a premium on the kind of high-speed, low-latency computing that Intel’s Xeon processors are designed to handle.

“That’s signaling the confidence around the growth opportunities for the business,” Chief Financial Officer David Zinsner told Reuters in an interview, explaining the decision to boost the capital expenditure forecast to $20 billion from a prior target of $18 billion. Zinsner added that capital spending will be “up meaningfully next year” as the company scrambles to expand manufacturing capacity.

The scramble reflects a stark reality: demand is outstripping Intel’s ability to produce the chips. Zinsner noted that first-quarter revenue would have been “meaningfully higher” if not for supply constraints. To lock in future output, Intel has signed a range of long-term agreements with customers for data center CPUs and specialized XPU chips. Those contracts span three to five years, with some locking in both volume and price and others securing only volume commitments.

While Zinsner cautioned that long-term deals can be renegotiated when market conditions shift, he said the agreements provide “pretty good confidence around what we should be planning in terms of output.” Intel currently holds about $30 billion in cash and a $10 billion line of credit. Zinsner did not rule out a potential share sale to fund expansion, though he stressed there are “no specific plans at this point.”

The Foundry Bet Begins to Pay Off

A cornerstone of Chief Executive Officer Lip-Bu Tan’s turnaround strategy is Intel’s contract manufacturing, or foundry business, which aims to produce chips designed by other companies. That effort gained credibility this quarter when the unit secured Elon Musk’s Tesla (TSLA) as a customer for its next-generation 14A process technology, part of the “Terafab” AI chip project. The win bolsters confidence that Intel can attract major buyers seeking an alternative to Taiwan Semiconductor Manufacturing Co. (TSMC), which dominates the advanced chip fabrication market.

Expectations for another marquee customer rose in April after U.S. President Donald Trump announced that Apple (AAPL) had agreed to manufacture processors with Intel. Neither company has formally confirmed the deal. Intel also disclosed a new foundry agreement this week with cybersecurity firm Fortinet to produce next-generation security chips.

“Intel has, as of right now, the most clean room space expansion opportunity sitting before it,” said Ben Bajarin, CEO and principal analyst at Creative Strategies. He noted that Intel can add capacity at its facilities in the United States and Ireland faster than TSMC can expand. Last week, Intel announced plans to invest roughly $5.7 billion in its Leixlip, Ireland, facility to increase production of Xeon server CPUs.

A Shifting Competitive Landscape

Intel’s resurgence in CPUs comes as the market grows more crowded. Nvidia (NVDA), which dominates the AI accelerator space with its graphics processors, is making a rare push into the CPU arena with its “Vera” processor. Featuring 88 custom-designed Olympus cores, Vera is engineered specifically for agentic AI workloads that require rapid back-and-forth between CPUs and GPUs. Nvidia argues that traditional metrics like core count per dollar are giving way to a new standard: how many tokens a system can produce per dollar and per watt of electricity.

Yet Nvidia’s ambitions are not an immediate threat to Intel’s data center stronghold. Intel’s Xeon 6 processors are being used in Nvidia’s own DGX Rubin NVL8 systems, underscoring the continued need for x86 compatibility in enterprise environments. Advanced Micro Devices (AMD) is also pushing deeper into the AI data center with its EPYC processors and Instinct GPUs, while cloud giants Amazon (AMZN) and Alphabet (GOOGL) continue developing their own Arm-based server chips.

RBC Capital analyst Srini Pajjuri noted that supply constraints are working in Intel’s favor by allowing the company to prioritize higher-value server CPUs and exercise greater pricing power. Still, about 58% of analysts covering Intel maintain hold ratings on the stock, according to FactSet, with many waiting for more concrete progress on gross margin expansion before turning more bullish.

MetricQ2 2026 ActualQ2 2026 EstimateQ3 2026 GuidanceQ3 2026 EstimateRevenue$16.13 billion$14.42 billion$15.8B – $16.8B$15.10 billionAdjusted EPS42 cents21 cents38 cents27 centsAdjusted Gross Margin41.8%38.8%——

Source: Company reports, LSEG estimates

The bullish report halted a slide that had erased more than a quarter of Intel’s market value since June 22, when the stock closed at a record high near $141 per share. The selloff was driven largely by broader semiconductor sector rotation rather than company-specific deterioration, as investors reassessed whether hyperscale cloud providers can sustain their aggressive AI infrastructure spending.

“Intel is my favorite chip stock,” CNBC’s Jim Cramer said ahead of the earnings release, praising Tan’s leadership as “nothing short of a miracle.” Cramer highlighted the foundry business as a potential vehicle to “save American chips” and emphasized Intel’s dominant position in CPUs. “This is the number one CPU company in the world,” he said.

Looking ahead, Intel’s ability to sustain its momentum hinges on executing a delicate balancing act: ramping manufacturing capacity fast enough to meet voracious AI-driven demand while maintaining the pricing discipline and cost controls needed to expand margins. The foundry wins with Tesla and Fortinet suggest early traction, but converting those initial deals into a durable, large-scale revenue stream will require flawless execution on advanced process technologies.

Zinsner’s message was one of cautious optimism. The long-term customer agreements provide a demand floor, while the increased capital spending signals management’s conviction that the AI opportunity is structural rather than cyclical. For investors who weathered the summer selloff, the earnings beat and raised guidance offer a tangible validation of Intel’s turnaround narrative—and a reminder that in the age of agentic AI, the humble CPU still has a starring role to play.