Here's Why Intel Stock Is a Buy Before Earnings

Intel's (NASDAQ: INTC) stock has had a fantastic year, but it is still below its all-time highs. While Intel has been seen as a loser in the artificial intelligence (AI) era and a technology laggard, both perceptions may soon flip to the positive after its upcoming earnings report.

Intel's buyout of Apollo indicates skyrocketing CPU demand

On its fourth-quarter earnings release, Intel gave lackluster first-quarter guidance, sending shares down from their highs. However, management explained that the lower Q1 revenue is due to Intel converting some of its production lines from client CPUs to server CPUs. Since it can take months to produce an advanced chip, Intel had to first finish ongoing client CPU production, then begin production of the new server chips, leading to a months-long supply "hole."

However, those server chips should have just begun coming out of Intel's fabs at the end of March. Thus, second-quarter guidance should indicate much stronger revenue and profits than the first quarter, as the new supply is sold.

"Stronger" results could also be an understatement. Based on industry reports, Intel also raised prices on server CPUs by 10% to 15% on two occasions during the first quarter, once in early February and again in late March.

The price increases are due to CPU shortages, driven by huge demand from AI inference applications. Whereas the "training" phase of AI required many GPUs, the "inference" stage of AI deployment is actually heavily dependent on traditional server CPUs.

As a result, demand for CPUs is skyrocketing. On March 20, Intel itself published a short paper noting that the ratio of CPUs to GPUs in inference servers is increasing due to the need for GPU orchestration, data handling, and agents that apply business logic to problems for the GPUs to solve. All these tasks fall to CPUs. Meanwhile, recent compression technologies, such as the just-released TurboQuant algorithm, could enable CPUs to handle all inference work for smaller-model tasks, bypassing GPUs altogether.

A big indicator that the server CPU boom is real was Intel's April 1 announcement that it was buying Apollo Global Management's (NYSE: APO) 49% stake in Intel's Fab 34 in Ireland for $14.2 billion. Fab 34 is where Intel produces its Granite Rapids server CPU, based on the Intel 3 node -- its most advanced server CPU on the market right now.

Apollo initially paid $11.2 billion for its stake in the fab in early 2024, and Intel has also been making payments based on Fab 34's output over this period. So, Intel's buyout of Apollo at a significant premium indicates Intel is very bullish about that fab's output going forward.

Image source: Getty Images.

Q2 guidance could dazzle

Adding it all up, by the second quarter, Intel will have switched over manufacturing lines from client CPUs to server CPUs, already raised prices on those CPUs twice, and will also benefit from increased profits on those server chip sales that would have otherwise gone to Apollo.

These three factors should add up to a massive profit inflection in Intel's server business, which should be reflected in forward guidance. That makes Intel's stock a buy ahead of the first-quarter release, even after its impressive recent run.

Billy Duberstein and/or his clients have positions in Intel and have the following options: short April 2026 $34 puts on Intel. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.