Intel Can Supply Only About Half of What Its Customers Want. That's a Better Problem Than It Sounds.

Intel (NASDAQ:INTC) CEO Lip-Bu Tan made an unusual admission at Splunk's .conf26 conference in Denver this week. Demand for the chipmaker's processors has outrun its factories so badly, he said, that Intel is meeting only about 50% of what its customers are asking for. CEOs have called him asking for more chips, Tan said, and he has had to apologize because Intel's capacity can't keep up.

The driver, according to Tan, is an explosion in demand for central processing units (CPUs) to run artificial intelligence (AI) inference -- the work AI models and agents do after they're trained. That work leans on CPUs, he argued, not just the graphics chips that dominate AI headlines.

Shares of Intel trade around $109 as of this writing, up about 6% this week and more than triple their price of a year ago.

A company that can't supply half of what its customers want may sound like one in trouble. But for a manufacturer whose gross margin sat below 30% a year ago, I'd argue it's closer to the opposite.

Does all of this make the stock a buy, though?

Image source: Intel.

Demand is outrunning Intel's factories

The shortage Tan described is showing up in Intel's reported results. As recently as the third quarter of 2025, Intel's revenue growth was just 3%. Growth picked up to 7% in the first quarter of 2026, then accelerated to 25% in the second quarter, when revenue reached $16.1 billion. Capturing where the demand is coming from, Intel's data center and AI segment grew 59% in the second quarter and reached $6.3 billion in revenue, after growing 22% in the first quarter. The client computing and physical AI segment, home to the company's PC chips, grew 13%.

And management's guidance suggests the momentum should continue. Intel forecast third-quarter revenue between $15.8 billion and $16.8 billion, implying growth of about 19% at the midpoint. Worth noting: that guidance came in July, before Tan described demand the company can't fully meet.

The margin recovery

Chipmaking is a fixed-cost business. After all, a factory costs billions of dollars whether it runs full or half-empty, so gross margin depends heavily on how much product flows through it.

A year ago, Intel's non-GAAP (adjusted) gross margin sat at 29.7%. By the first quarter of 2026, it had climbed to 41%, and in the second quarter it hit 41.8%. Management expects 42% in the third quarter.

In other words, the recovery is holding, and it's still inching higher. Profits followed, too, with Intel posting $0.42 in adjusted earnings per share for the second quarter, against an adjusted loss a year earlier.

Management is spending to catch up with demand. "[W]e are meaningfully increasing our investments in equipment, clean room space, and substrates," chief financial officer Dave Zinsner said alongside the second-quarter results.

New manufacturing capacity is on the way, too. Intel's 18A process (the one behind its new Panther Lake laptop chips) is in high-volume production.

And Tan said this week that its successor, 14A, begins production in the first quarter of 2027.

But what about the price?

Of course, a shortage still has costs. Demand Intel can't meet is revenue it doesn't collect, and customers who can't get chips may not wait for 14A.

A production start isn't the same as volume, either. New processes ramp over quarters, so the supply gap Tan described could persist well into 2027.

The bigger issue for investors, though, is the stock's price. After this year's run, Intel's price-to-earnings ratio is about 53 based on next year's expected earnings. That price arguably assumes years of strong execution, even as Intel's own guidance implies growth cooling to about 19% this quarter from 25% last quarter.

Sure, when new capacity comes online, unmet demand could convert into revenue quickly. But the stock is already priced for that outcome, not a bonus on top.

Ultimately, Tan is describing a good problem. Fuller factories helped rebuild Intel's gross margin in a single year, and demand still exceeds what the company can make.

Still, is Intel stock a buy? I don't think so -- not at this price. A good problem isn't the same as a cheap stock, and at more than 50 times next year's forecast earnings, shares already give Intel credit for capacity the company doesn't yet have.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.