Intel Smashes Q1 Expectations on AI-Driven Server Demand

Intel (NASDAQ: INTC) delivered a surprise first-quarter performance, significantly exceeding analyst projections for both top and bottom lines. The company reported total revenue of $13.6 billion, a 7% year-over-year increase, while adjusted earnings per share (EPS) soared to $0.29, dwarfing the anticipated $0.01. The primary catalyst for the beat was a sharp increase in demand for server central processing units (CPUs) used to manage AI agents. This shift toward inference and agentic AI helped the Data Center and AI (DCAI) segment grow revenue by 22% to $5.1 billion. The company noted that the ratio of AI accelerators to CPUs is closing as the market evolves. Other segments showed mixed results. The Client Computing Group (CCG) remained relatively flat with $7.7 billion in revenue, and the foundry business grew 16% to $5.4 billion. However, the foundry segment continues to be a drag on profitability, posting an operating loss of $2.4 billion for the quarter. Gross margins showed improvement, rising 250 basis points to 39.4%. Looking ahead, Intel provided optimistic Q2 guidance, forecasting revenue between $13.8 billion and $14.8 billion and adjusted EPS of $0.20, both well above consensus estimates. While the company expects a slowdown in general computer demand in the second half of the year, it anticipates server CPU strength to persist into 2027. Despite the operational turnaround, the stock's rapid ascent—doubling in value over the last month—has pushed its forward P/E ratio to 161. This extreme valuation has led some analysts to caution that the stock may now be overextended relative to its fundamental growth.