Brief

AI There is a surge in demand for server processors, but shortages in manufacturing and packaging are limiting production. Meanwhile, Intel expects the PC market to continue to shrink until 2027 and warns that there may not be positive free cash flow next year.

This round of selling wiped out more than $146 billion in market value and resulted in the worst one-day decline in over 50 years.

The problem is that Intel is in an unusual position: due to the infrastructure construction driven by AI, there is a surge in demand for its processors, but the company is unable to produce enough chips to seize this opportunity. At the same time, its traditional PC business is struggling, and the factories required for a long-term recovery are consuming huge amounts of capital.

The strongest performers were Intel's data centers and the AI department, which generated revenue of $7.3 billion, a year-on-year increase of 78%, and nearly 80% compared to the same period last year. The department's operating profit reached $3 billion, accounting for 42% of its revenue.

But what investors are concerned about is what will happen next. Intel expects its revenue for the fourth quarter to be between $15 billion and $16 billion, which means that its guidance of $15.5 billion is about $1.6 billion lower than the analysts' forecast of $17.07 billion. Adjusted earnings per share are expected to fall to $0.25, compared to Wall Street's expectation of $0.43.

Gross margin, which measures how much profit remains after deducting the direct costs of products, is also expected to deteriorate. Intel expects the gross margin for non-GAAP in the fourth quarter to be 38%, lower than the 44.1% in the third quarter.

There are mainly three reasons for this deterioration: weak demand for PC, manufacturing limitations affecting server processors, and an accident that occurred at an Intel factory in Israel.

Intel's Chief Financial Officer Dave Zinsner described 2027 as an year of investment and warned investors not to expect positive free cash flow. Free cash flow is the money that remains after a company has paid for operating expenses and investments in equipment and infrastructure. Intel expects to sacrifice its short-term cash generation capacity in order to fund its manufacturing expansion.

Zinsner stated during the financial report conference call: 'Next year, it is very likely that we will not have positive free cash flow.' He added that Intel expects the return on invested capital for its manufacturing node investments to be at least 20%, but also acknowledged that multiple large projects will require significant expenditures simultaneously.

This expenditure is part of Intel's broader efforts to rebuild its manufacturing business and compete with TSMC, the world's leading foundry chip manufacturer. Intel hopes to not only manufacture chips for its own products but also to provide foundry services for external customers, a business model known as wafer foundry.

This transformation has attracted important partners. In September 2025, NVIDIA invested $5 billion in Intel and agreed to collaborate on custom processors for PC and data centers. This partnership not only provides financial support for Intel but also connects its processors with NVIDIA's AI ecosystem.

Intel's next-generation 18A manufacturing process – which includes the manufacturing technology behind chips such as Panther Lake – is at the core of the company's efforts to regain its technological advantage.

These developments once fueled optimism in the market about Intel's recovery, but Friday's selling pressure indicates that there is still much that needs to go right. The company has strong demand in its data center business, but before investors begin to expect stable cash generation, it still needs to increase manufacturing output, cope with the shrinking PC market, and raise funds for its costly expansion plans.