Is Intel Stock a Buy as AI Revenue Surges Nearly 60%?

Better late than never: Intel (NASDAQ: INTC) has officially joined the artificial intelligence (AI) infrastructure boom, with the company seeing its data center and AI segment revenue surge in the second quarter. Shares jumped in after-hours trading, but Intel gave back those gains after management acknowledged the company would meaningfully increase its capital expenditures (capex) this year. Punishing AI stocks that increase their capex has been a major theme this earnings season.

Intel's stock has now lost about a third of its value from its recent highs. However, its shares are still up more than 150% on the year and over 300% in the past 12 months.

Server CPUs lead the way

The biggest driver of Intel's growth was data center central processing units (CPUs). Demand for server CPUs has increased in the second quarter on a sequential basis and management expects double-digit industry growth both this year and next, with momentum continuing into 2028. Meanwhile, demand continues to far outstrip supply, leading to higher CPU prices across the board.

This helped lead to a 59% jump in its data center and AI product revenue to $6.3 billion. Its client computing group product revenue rose 13% year over year to $8.9 billion, leading to total product revenue climbing 28% to $15.1 billion. That was a big step up from the 9% rise in product revenue it saw in Q1.

Intel's foundry business, meanwhile, saw revenue surge 31% to $5.8 billion. However, the segment continues to post large operating losses, with a $2.1 billion loss in the quarter. Revenue from Intel's other businesses sank 33% year over year to $0.7 billion, largely due to the sale of 51% of its Altera subsidiary.

Overall revenue for Intel climbed 25% to $16.1 billion, its fastest growth in almost 15 years. Its adjusted earnings per share went from a loss of $0.10 to a profit of $0.42. This was bolstered by a big 1,290 basis-point increase in its gross margins to 40.4%.

Looking ahead, Intel projected Q3 revenue to be between $15.8 billion and $16.8 billion with adjusted EPS of $0.38. That was well ahead of the $0.27 in EPS and $15.1 billion in sales that analysts were expecting. It projected gross margins to be around 41%.

It expects supply constraints to affect it next quarter, with improvements starting to show up toward the end of the quarter and into Q4. It also raised its projected capex, taking its 2026 budget from initial guidance of around $17 billion to $18 billion to over $20 billion. Capital expenditures for 2027, meanwhile, are expected to be significantly above 2026 levels.

Image source: The Motley Fool.

Is Intel stock a buy?

While Intel is starting to see strong momentum in its data center and AI segment, this seems more driven by the sudden need of hyperscalers to grab whatever server CPUs they can to help handle agentic AI than by any big moves that the company has made. CPU demand is through the roof, which is helping with pricing in its client computing group segments. And while its foundry business is gaining some traction, it remains a money-draining business during one of the biggest semiconductor booms of all time.

Before its run, Intel was a cheap stock barely trading above the value of its physical assets. Now it has a forward P/E of 105, and the stock's valuation looks bloated for a company that seems more like a passenger than one helping to drive the market. I think there are better AI stocks out there to buy.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.