Intel's Data Center Revenue Soared 59% in the Second Quarter. So, Why Did Wall Street Sell the Stock?
Key Points
Intel is steadily becoming a player in the data center race.
Its Foundry segment is growing, and operating margins are rising.
But capital expenditures are ballooning, and that's why the stock is falling.
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Intel (NASDAQ: INTC) is becoming a player in the data center boom. The embattled tech company grabbed Wall Street's attention with its Q2 2026 earnings report, headlined by impressive 59% growth in its Data Center and Artificial Intelligence (DCAI) division. It's a notable acceleration from the 22% growth Intel posted in the prior quarter.
Overall, total revenue grew 25% year over year, the fastest quarterly growth that Intel has achieved in over 15 years. Ironically, Intel's stock then tanked, closing down nearly 8% on July 24. Accompanying that top-line growth was an ugly GAAP net loss of $11.03 billion or $2.16 per share.
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Given that Intel stock is up over 300% over the past year, it's worth exploring this disconnect to see where the company's turnaround efforts are actually trending.
Image source: Getty Images.
An $11.03 billion loss? Yikes! It doesn't tell the story
Intel's enormous GAAP loss is certainly attention-grabbing, but it's actually due to a $12.5 billion non-cash escrow charge related to the CHIPS Act. Beneath the surface, Intel's business is improving rapidly in several areas.
On top of the DCAI segment growing 59%, operating margins soared to 39.5% from 16.1% a year ago. Growth in Intel's Client Computing and Physical AI group also accelerated from 1% in Q1 2026 to 13% in Q2. Companywide, Intel's operating income of $2.8 billion was nearly as much as the prior two quarters combined, and gross margins increased to 41.8% from 29.7% a year ago.
AI data centers are driving demand for server-grade CPUs, such as Intel's Xeon 6 platform, which Nvidia selected as the host CPU for its DGX Rubin NVL8 systems. Intel guided for just 18.2% revenue growth in Q3. However, Intel initially guided for a much slower second quarter, and then blew that guidance out of the water with its actual Q2 performance. I wouldn't be surprised if actual growth comes in higher once again in Q3.
The foundry business continues to weigh on Intel
It's not all roses. Intel's efforts to compete in the foundry business are central to the company's long-term plans. There was some progress in Q2, but it's still a tough slog at this point. Foundry is still dragging on the rest of Intel's financials. Foundry revenue grew 31% to $5.8 billion, but the segment still posted an operating loss of $2.1 billion. Operating margins are improving quarter by quarter, but remain deep in the red.
Foundry is also beginning to rack up a larger tab. Intel's capital expenditures totaled $12.1 billion over the past 12 months, and that spending is accelerating. Management warned that Intel will now spend $20 billion in 2026, notably higher than originally anticipated, and will spend even more in 2027.
Intel's Q2 earnings showed that the company is making noise in the data center race. Still, the Foundry segment will likely weigh on the rest of the company for a while yet. Considering how much Intel stock has run up over the past year, it's not surprising to see shares give back a little on the news of higher planned expenditures.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel and Nvidia. The Motley Fool has a disclosure policy.
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