Is Intel Stock a Buy Right Now?

Intel (NASDAQ: INTC) has been one of the market's biggest comeback stories this year. The stock is up about 150% year to date, as of Oct. 21, as the chipmaker delivered its strongest revenue growth in more than 15 years.

However, shares have cooled off, falling about 36% from their June high. Here's why that pullback looks like a buying opportunity.

AI demand is fueling Intel's turnaround

Intel's revenue grew 25% year over year to about $16.1 billion in the quarter ended June 27. That was $1.8 billion above the midpoint of management's guidance, a sign of solid execution and strong demand for processors from the data center market. Revenue tied to artificial intelligence (AI) grew by more than 70% year over year and accounted for about 70% of revenue.

Management said server growth was the strongest on record, and revenue from custom chips designed for specific customers nearly tripled. After years of declining unit sales, server processor shipments are now growing by double digits.

Agentic AI is a big opportunity for Intel. Agents carry out multi-step tasks on their own, using software tools to complete them, and that work runs on central processing units (CPUs). CFO David Zinsner said AI agents can require four to six times as many processors as training AI models. That implies significant growth is still ahead as more people use agents for everyday work.

Image source: Getty Images.

Rising margins could drive substantial earnings growth

The bigger catalyst for investors may be Intel's improving margins. The second-quarter adjusted gross margin jumped to nearly 42% from about 30% a year ago. That translated into $0.42 in adjusted earnings -- reversing the $0.10 loss in Q2 2025.

But Zinsner wants to reach 50% over the long term, which means earnings are likely going to keep growing faster than revenue over the next several years. Intel has multiple levers to improve gross margin, such as using less silicon per chip, reducing packaging costs, and cutting component costs and test times.

One drag on margin has been Intel's foundry business, which makes chips for other companies, and reported a large $2.1 billion loss in the second quarter. Continued losses reflect an uphill battle in competing with the leading chip foundry, Taiwan Semiconductor Manufacturing.

However, improving profitability in this business is another catalyst for improving margins. Management believes the foundry business can reach breakeven by the end of 2027, though start-up costs for bringing on new customers could push that into 2028.

The stock isn't cheap at about 60 times this year's expected earnings, but it trades at a more reasonable 43 times next year's estimate. Analysts' consensus estimates call for earnings to grow at an annualized rate of 69% in the next several years, which can support the stock's high price-to-earnings multiple.

Intel reports third-quarter results on Oct. 29, with guidance calling for revenue of $15.8 billion to $16.8 billion. For investors who can look past near-term volatility, Intel stock looks like a buy, given the opportunity to supply more CPUs for agentic AI and higher earnings.

John Ballard 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.