Intel(NASDAQ: INTC) traders are having an exceptional yr up to now, as shares of the semiconductor large have shot up practically 225% in 2026 as of this writing.
Intel inventory has benefited from a number of favorable developments this yr. From its bettering monetary efficiency to the rising affect in synthetic intelligence (AI) chips to the progress that Intel is making in its foundry enterprise, traders have discovered a number of causes to be upbeat in regards to the inventory in 2026.
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However can this semiconductor inventory maintain its spectacular momentum and ship extra positive aspects over the subsequent two and a half years? Let’s discover out.
Picture supply: Intel.
Intel’s valuation is a sticking level for the inventory
Intel’s beautiful rally in 2026 explains why the inventory is buying and selling at a whopping 904 instances trailing earnings. That is effectively above its price-to-earnings (P/E) ratio of 615 on the finish of 2025. Moreover, the ahead earnings a number of of 147 is on the costly aspect, on condition that the tech-focused Nasdaq-100 index has a ahead P/E ratio of 26.
The valuation means that Intel inventory might have gotten forward of itself. Even the inventory’s 12-month median worth goal of $90 factors to a 25% decline. What’s extra, solely a 3rd of the 51 analysts masking the inventory fee it as a purchase. So, the Wall Avenue sentiment means that Intel inventory might not ship additional upside going ahead.
Nevertheless, the corporate has displayed a penchant for springing enormous earnings surprises over the previous three quarters. Its backside line has considerably exceeded analysts’ expectations, and that is been key to the large surge in its inventory worth. The excellent news for traders is that there are indicators that Intel might proceed to outpace consensus expectations.
Booming chip demand, new clients, and bettering yields might gasoline extra upside
Intel launched its first-quarter outcomes final month. The corporate’s income grew by a stable 7% yr over yr to $13.6 billion. Extra importantly, it reported non-GAAP earnings per share of $0.29, up considerably from $0.13 per share within the year-ago interval. Analysts would have settled for simply $0.01 in earnings per share.
Intel’s knowledge middle and AI (DCAI) phase reported 22% year-over-year progress in Q1 to $5.1 billion. In the meantime, the Intel Foundry phase noticed income bounce 16% yr over yr to $5.4 billion. These two segments collectively produced 77% of its high line in the course of the quarter. The excellent news for traders is that each companies might proceed to develop at wholesome charges.
Within the DCAI enterprise, as an example, the demand for Intel’s merchandise is outpacing provide, particularly for its server central processing items (CPUs). Not surprisingly, the corporate is concentrated on growing manufacturing unit output to fulfill sturdy demand. That is the good factor to do, as the large funding in AI knowledge middle infrastructure is popping out to be a tailwind for practically all of the chipmakers.
It’s estimated that the highest 4 hyperscalers within the U.S. might increase their 2026 capital spending by 77% to a whopping $725 billion. These corporations need to get their palms on all of the compute {hardware} they will, which is not shocking as they want a number of chips to fulfill their enormous contractual backlogs, which run into greater than $2 trillion.
So, all the foremost AI chip corporations, together with Intel, are benefiting from this large outlay. Market analysis agency Gartner estimates that general AI infrastructure spending might develop by one other 32% in 2027 to $1.89 trillion. So, the stable progress of Intel’s DCAI enterprise ought to proceed to gasoline terrific bottom-line progress for the corporate.
In the meantime, Intel’s foundry enterprise is gaining spectacular traction amongst clients. The corporate is reportedly going to fabricate chips for shopper electronics large Apple. The iPhone maker has been counting on Taiwan Semiconductor Manufacturing for its chip manufacturing. Nevertheless, TSMC’s capability is constrained by sturdy demand from Nvidia and different AI chip designers, which explains why Apple is taking a look at Intel to make its chips from subsequent yr.
Even higher, Intel says that the manufacturing yield of its superior 18A course of is bettering at a pleasant clip of seven% to eight% a month. Manufacturing yield is the share of practical chips produced from a silicon wafer. The next yield means it prices much less to supply a functioning chip, suggesting a possible bounce in profitability.
Importantly, there’s a sturdy curiosity in Intel’s 18A course of from exterior clients, suggesting that its foundry enterprise might proceed clocking stable progress going ahead. Additionally, the bettering yield ought to be a tailwind for the corporate’s backside line. In all, it’s straightforward to see why analysts have considerably elevated their progress expectations for Intel for 2027 and 2028.
The chart above means that Intel’s income will enhance within the double digits going ahead. In fact, the corporate might do higher than that, given new foundry clients similar to Apple and the secular progress alternative within the AI infrastructure house. However even when it achieves $72 billion in income in 2028 and maintains its price-to-sales ratio of 10.4 at the moment, its market cap might enhance to $749 billion. That implies potential upside of 24% in comparison with its present market cap.
Nevertheless, an acceleration in Intel’s progress may lead the market to reward this AI inventory with a better gross sales a number of, indicating that stronger upside can’t be dominated out. Additionally, the corporate’s means to develop earnings at a a lot stronger tempo resulting from new buyer additions and bettering yields within the foundry enterprise may very well be one other tailwind for the inventory, suggesting it is smart to proceed holding Intel in anticipation of extra upside.
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Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Gartner. The Motley Idiot has a disclosure coverage.
