Intel Inside

January 23, 2026

Here’s a crazy stat – Intel stock is up 120% over the past year!  Yes, even including today’s 13% drop.  What’s going on there?   Well, it’s not because of the financial results.  Over the past year, Intel’s total sales fell by -0.5%.  And its profits were down by a lot more.  So what the heck is going on?  

Intel still designs and makes its own chips.  But it’s slowly getting into the business of making chips for other people – called a “foundry”.  Long-term, the plan is for Intel’s foundry to compete with Taiwan Semi (TSM).  Regular readers know that TSM currently makes nearly all of the high end chips on the planet.  TSM, however, is under constant threat from China, who wants to reclaim Taiwan as part of itself.

So, it sounds great in theory:  Intel will replace TSM as the world’s maker of advanced chips via large manufacturing facilities here in the USofA.  Where it’s safe.  This strategic theory is back-stopped by President Trump’s seal of approval.  In August of last year, Intel gave the US govn a 10% equity stake in the company.

So what’s the problem?  Making advanced chips is super hard.  It’s literally one of the hardest things that mankind can do.  The chip in your iPhone has walls that are measured by “number of electrons” across.

So Intel is having a slow start.  The customers are less than convinced that Intel is up to the task.  And needless to say, it’s good to have customers lined up before you build a plant that costs hundreds of billions of dollars.

On top of the “can they do it?”-questions, customers are not excited about a large competitor making their own chips.  For instance, if there’s a supply shortage of a key input (like there is currently), whose chips will get priority?  So the foundry business is not gaining much traction at the moment.  This morning, Morgan Stanley said they do not expect significant revenue from the foundry business until 2028 or 2029.  

In the meantime, Intel is trying to fix its core business of making its own semiconductors.  In 2018, Intel generated around $23 billion in operating profit.  This year, Wall Street estimates it will be only $4 billion.  You dont need a fancy MBA to know that’s not the right direction.  In that business, AMD has raced ahead of Intel in terms of chip speed (it’s a long-story).  So Intel is losing share in higher-end PC’s and servers to AMD.   Not only is Intel behind, they’re having to spend aggressively to catch back up.   The semis analyst at Bernstein is one of the most respected on the street.  He has a saying about Intel’s chip business:  “It took them a decade to break it, it’s gonna take them a decade to fix it.”

Intel just reported earnings for last quarter.  Demand for data center servers was very strong.  So revenues were better than expected.  But the stock is down on weaker than expected forward guidance.   Revenue next quarter is expected to fall -12% quarter/quarter.  Forward guidance was weak not because of lack of demand – but because of lack of supply of key materials, namely “wafers”.  

I imagine intel will continue to be volatile in the near future, because its stock is reliant on two giant question marks – (1) can it turn around its core chip making business in the near-term, and (2) can it make a successful foundry business in the long term. The answer to either question is not clear.  But at 82x earnings, the market is giving them the benefit of the doubt … for now.