Should You Buy Intel Stock as Its Foundry Turnaround Takes Shape?

Intel's (NASDAQ: INTC) comeback has been quite a sight to behold. As of this writing, shares of the chipmaker have exploded by more than 220% in 2026 in part due to surging demand for the company's CPUs, but also due to increased optimism about the outlook for its foundry business. And even with that incredible run-up behind it, patient investors may still want to consider buying Intel's stock.

Intel's turnaround is gaining momentum

Intel's second quarter was one of its best in several years. Revenue jumped by 25% year over year to more than $16 billion. Intel's gross margin also improved tremendously, rising to 40.4% from 27.5%.

The bigger story here is Intel's foundry division and the turnaround happening within it. Intel Foundry's revenue was nearly $6 billion in the quarter, and its output paced 25% above the target. While the segment posted a $2.1 billion loss, the gap is narrowing. Foundry revenue from external customers was just $293 million, which means that if its turnaround is to gain steam, Intel really needs to win more business from outside clients.

The company's GAAP loss was $2.16 per share, but it's important to note that this was largely due to an escrow arrangement related to funds it was awarded through the CHIPS Act. On the books, that showed up in the form of a non-cash charge of $12.53 billion. So the quarter's loss was not reflective of operational issues.

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14A is make or break

Much of Intel Foundry's future success hangs on the successful launch of Intel 14A. This is a next-generation semiconductor fabrication process node that will produce chips with even greater transistor density than 2-nanometer chips. The development of its 14A foundry is nearing completion, with risk production planned for 2027 and a high-volume mass-production target of 2028. Management's hope is that its 14A manufacturing services will position it to pose a serious challenge to Taiwan Semiconductor's dominance in cutting-edge chip manufacturing.

In a bullish sign, Intel CFO David Zinsner implied on the Q2 earnings call that the development is going very well and that conversations with potential customers have shifted from evaluating 14A to inquiring about how much capacity they can secure.

It's been reported that a slew of megacaps, including most of the "Magnificent Seven," are among Intel's prospective foundry clients. However, Intel will need to secure one of these large-scale customers sooner rather than later.

In June, Bank of America analyst Vivek Arya gave Intel stock an unusual double-upgrade from underperform to buy, citing an optimistic outlook for its foundry business and strong demand. Intel did have to engage in a $23 billion secondary stock sale in August to help fund its foundry build-out.

Intel is firing on all cylinders

Intel is due to report its third-quarter earnings on Oct. 22. The company's guidance suggests revenue could be as high as $16.8 billion. One concern is that Intel's valuation is sky-high right now. The company for years maintained a forward P/E ratio in the low teens. Now that metric stands at more than 60.

Furthermore, the consensus price target among analysts is just above $116 per share, and the stock is trading above that as of this writing. There isn't much room for error with Intel's stock.

However, given the company's main revenue sources and an ever-improving foundry operation, I'm quite bullish on Intel's future -- as long as its 14A process node proves as promising as advertised. For interested investors, it may be prudent to build a position in Intel slowly rather than all at once, given the milestones the company still needs to hit over the next couple of years.

Bank of America is an advertising partner of Motley Fool Money. Catie Hogan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.