Intel has raised its 2026 capital expenditure to over $20 billion and signaled further increases in 2027. Goldman Sachs believes this indicates the company is fully betting on expanding advanced manufacturing processes and packaging capacity, banking on AI server demand and long-term growth in its foundry business, thus launching a new long-term capital spending cycle. However, Goldman Sachs maintains a neutral rating on Intel, citing that peers such as AMD, Nvidia, and Broadcom still hold advantages in revenue visibility and risk-reward ratio.
Intel raised its 2026 capital expenditure guidance from $17 billion to over $20 billion and signaled further significant increases in 2027. This announcement, combined with its across-the-board quarterly earnings beat, sent a clear message to the market: the chip giant is betting on a long-cycle expansion centered on advanced manufacturing processes and packaging capacity.
According to a Goldman Sachs report, Intel's second-quarter revenue reached $16.1 billion, far exceeding the firm's estimate of $14.3 billion and the consensus estimate of $14.4 billion. Non-GAAP earnings per share came in at $0.42, nearly double the market's expectation of $0.22. Meanwhile, the company guided third-quarter revenue to a midpoint of $16.3 billion and a gross margin of 42%, both significantly above market expectations.
The jump in capital expenditure is not an isolated decision but is built on multiple foundations, including the continued ramp-up in yield for its 18A process, progress ahead of schedule on its 14A process, and strengthening demand signals from data center customers.
Goldman Sachs analyst James Schneider and his team believe that Intel is benefiting from rising server demand driven by agentic AI, and the long-term potential of its foundry business also provides upside optionality for the stock. However, Goldman Sachs maintains a neutral rating on Intel with a $150 price target, citing that peers like AMD, Nvidia, and Broadcom still offer better revenue visibility and risk-reward profiles.
Earnings Beat Across the Board, Data Center Shines Brightest
All of Intel's business segments exceeded market expectations in the second quarter, with the Data Center and AI (DCAI) business standing out particularly.
DCAI revenue reached $6.26 billion, up 24% quarter-over-quarter and 59% year-over-year, surpassing Goldman Sachs' estimate of $5.68 billion and the market's expectation of $5.59 billion. Intel attributed this growth to a strong recovery in demand for general-purpose servers and incremental demand driven by agentic AI.
The Client Computing Group (CCG) generated $8.88 billion in revenue, also beating Goldman Sachs and market estimates by about 11%. Intel Foundry revenue was $5.77 billion, slightly exceeding expectations. Overall gross margin came in at 41.8%, approximately 254 basis points higher than Goldman Sachs' estimate, while the operating margin of 17.2% was nearly 600 basis points higher than market expectations.
Looking ahead to the third quarter, Intel expects DCAI to achieve even stronger sequential growth as additional capacity comes online. The company is currently in a capacity-constrained state, so supply-side expansion will directly translate into revenue growth. Based on this, Goldman Sachs raised its earnings per share estimates for 2026 to 2028 by an average of about 49%.
Capital Expenditure Leaps, Betting on Advanced Packaging and 14A Process
The upward revision to capital expenditure guidance is the most strategically significant signal from this earnings report. Intel raised its 2026 capital expenditure from the previous $17 billion to over $20 billion and explicitly stated that it will significantly increase spending in 2027 and beyond to support the expansion of advanced packaging capacity and prepare for the mass production of its 14A process.
In terms of specific investment areas, Intel plans to increase its wafer fab equipment (WFE) spending by approximately 40% in 2026. This increase reflects that the company's previous front-end investments in building shells and cleanroom space are now entering an equipment-fill phase. The company stated it will simultaneously expand front-end wafer capacity and advanced packaging capacity in response to continuously strengthening customer demand signals.
Goldman Sachs noted that Intel's recent traction in advanced packaging, combined with its strategic positioning as a "national champion" for domestic U.S. foundry services, constitutes upside optionality for the stock. However, the significant increase in capital expenditure also implies increased pressure on free cash flow in the near term. Goldman Sachs expects Intel's net debt/EBITDA ratio to rise from 0.8x to 1.2x in 2026.
Process Technology Progress Provides Confidence
The confidence behind the capital expenditure expansion stems from substantial progress in Intel's process technology. The company stated that the yield and production ramp-up for its 18A process on server and client products continues to advance and entered the risk production phase for 18A-P in the second quarter.
Regarding the next-generation 14A process, Intel disclosed that its internal process metrics at an equivalent node have already surpassed the level 18A had at the same stage. The company plans to release PDK 0.9 in October of this year and expects to enter risk production in the second half of 2027, with mass production targeted for 2028.
Goldman Sachs believes that the positive progress on this process roadmap is an important positive factor for this earnings report, helping to boost market confidence in the long-term competitiveness of Intel's foundry business. However, analysts also caution that slower-than-expected ramps of advanced process nodes and a decline in server CPU market share remain key downside risks for Intel.
Goldman Sachs Maintains Neutral Stance Amid Valuation Space and Competitive Pressure
Despite the across-the-board earnings and guidance beats, Goldman Sachs maintains a neutral rating on Intel with a $150 twelve-month price target, unchanged. This target is based on a 30x price-to-earnings multiple applied to normalized earnings per share of $5, implying approximately 42% upside from the current stock price of around $100.
Goldman Sachs analysts believe Intel's upside risks stem from three main areas: greater customer traction for its foundry services, better-than-expected improvement in server CPU demand and market share, and a larger-than-expected improvement in profit margins. Downside risks are concentrated on slower-than-expected ramps of advanced process nodes and potential loss of server CPU market share.
Goldman Sachs views Intel's closest peers—AMD, Nvidia, and Broadcom—as more attractive investment options in terms of revenue visibility and risk-reward profiles, which is the core logic behind its neutral rating. For investors, Intel's current investment value is more akin to a long-term bet with upside optionality rather than a source of near-term deterministic returns.
Comments