The AI Narrative Is Tilting, and It Could Lift Intel Stock

After a monster run, the next leg up for Intel may depend on a surprising comeback story for its oldest and most important product.

After a 471.0% run over the past year, you might think the easy money in Intel (INTC) has been made. The stock has a history of explosive rallies, but past performance, as they say, is no guarantee of future results. So, what could possibly justify another major move higher from here?

The answer may lie in a quiet but powerful shift happening at the heart of the artificial intelligence buildout. For years, the AI story has been all about GPUs. But according to Intel’s management, there are now “clear signs that the CPU is reinserting itself as the indispensable foundation of the AI era.”

The Engine Room Is Humming Again

The evidence for this shift is already materializing. The company’s Data Center and AI (DCAI) segment saw revenue jump 22% year-over-year last quarter. More telling, the company’s outlook for server CPU demand has actually improved over the last 90 days. Management now expects a “strong year of double-digit unit growth” for the server industry and for itself.

Demand is so strong, in fact, that it “continues to run ahead of supply,” especially for its Xeon server CPUs. To put a finer point on it, when asked to quantify the missed revenue opportunity, the CFO would only say it “starts with a B.” This isn’t a fleeting trend, either. The company recently signed “multiple long-term agreements, including Google,” which it says supports the view that the current business momentum is sustainable.

The Price of Progress

But here’s the catch. Powering this resurgence requires a massive, expensive manufacturing transition. The company is ramping up its new Intel 18A process, a critical step for its future but a costly one today. The CFO was direct, calling the new node a “pretty decent headwind to our gross margins.”

The sheer force of this revived CPU demand must now generate enough high-margin revenue to overcome the drag from building the factories of tomorrow. While the company’s collective AI-driven businesses already represent 60% of revenue and grew 40% year-over-year, the challenge remains converting that top-line momentum to the bottom line.

What to Watch Next

Forget the headline revenue number for a moment. The real test will show up in the profitability of the division at the center of this story. For its second quarter guidance, Intel projected that DCAI revenue would be up double digits sequentially. Keep your eyes on the operating profit for DCAI. In the first quarter, it was $1.5 billion. Investors should watch whether that operating profit for DCAI can grow in lockstep with revenue.

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