Idea of the Week : Intel’s darkest hour has passed — AI and foundry as dual drivers

Highlights:

• Benefiting from strong AI computing demand, Intel’s 2025 DCAI revenue increased by 5% YoY to US$16.9 billion, Intel Foundry grew by 3% YoY to US$17.8 billion, total revenue was flat at US$52.9 billion, and operating losses narrowed significantly, indicating that the transformation is gradually taking effect.

• Cash balance totalled US$33 billion, net gearing fell to 9.7%, debt maturities are reasonably staggered, short-term liquidity remains ample, and the credit base is still sound.

• Among the dollar bonds available on the platform, Intel bonds offer net yields to maturity of 4.4% to 6.1%. Longer-dated bonds provide a clear spread pickup versus comparable peers, making them relatively attractive.

Intel Corporation, founded in 1968, is a leading global semiconductor company with businesses spanning Client Computing Group (CCG), Data Center and AI (DCAI), Intel Foundry, and other advanced technology solutions. The company has long dominated the PC and server markets with its x86 architecture, and in recent years has been actively transforming itself by investing in AI chips and foundry services to respond to the strong rise of competitors such as NVIDIA in the AI accelerator market. As of May 2026, Intel’s market cap is approximately US$580 billion.

In 2025, Intel continued to make heavy capex to support AI infrastructure and the R&D of its advanced 18A process technology. At the same time, ongoing losses in the Intel Foundry business kept market concerns about its free cash flow and debt sustainability elevated, causing Intel’s CDS spread to widen to over 80 bps at one point. However, in August 2025, Intel received explicit backing from the U.S. government — with the Trump administration formally taking a 10% stake for US$8.9 billion, cementing Intel’s position as a core domestic advanced semiconductor manufacturer in the United States. In addition, Intel’s Q1 2026 results significantly beat expectations, sending its share price up by as much as 100%. Against this backdrop of debt pressure and sovereign backing, are Intel’s U.S.-dollar bonds a value trap or a worthwhile investment opportunity? This article will provide a deep dive into Intel’s historical performance and its financial results for the first quarter of 2026 and assess them one by one.

*18A is Intel’s latest advanced semiconductor process technology, currently equivalent to the roughly 1.8-nanometer node. In terms of performance and power efficiency, it is superior to TSMC’s most advanced mass-production process, TSMC N2 (TechInsights performance score 2.53 vs 2.27), and its mass-production timing is earlier, but its transistor density still lags behind TSMC N2. It can be used for consumer-grade and AI processors and is also an important product for the company’s foundry services (Intel Foundry).

AI and Foundry as the Two Engines of Transformation, with Results Gradually Becoming Visible

Intel recorded *total revenue of US$52.9 billion in 2025, broadly flat YoY versus US$53.1 billion in 2024, mainly supported by growth contribution from the data center business driven by AI demand (see Chart 1). Operating losses narrowed sharply to US$2.21 billion from US$11.68 billion in 2024, indicating that the cost pressure associated with the transformation is gradually easing, although there remains a meaningful gap before the company can return to profitability (see Chart 2).

*Intel’s total revenue is lower than the sum of segment revenues mainly because internal chip sales from Intel Foundry to the product divisions (CCG and DCAI) are eliminated under GAAP segment reporting requirements.

Chart 1: Intel segment revenue contribution

Chart 2: Intel segment operating income and operating margin

By business segment

CCG generated revenue of US$32.2 billion, down 3% YoY, but it remained the company’s largest revenue source (61% of total revenue). Although overall PC demand recovered only gradually, Intel’s Core Ultra processor shipments remained resilient, and AI PC features helped improve the premium product mix, supporting revenue stability.

DCAI recorded revenue of US$16.9 billion, up 5% YoY, making it the brightest growth segment. AI compute demand drove shipments of Gaudi accelerators and Xeon server CPUs, while DCAI operating margin improved materially to 20% from 9% in 2024; operating profit surged 243% YoY to US$3.4 billion, reflecting a higher contribution from AI-related, higher-margin products.

Since 2024, Intel has reported Intel Foundry as a separate segment because its manufacturing costs and product business were previously reported together, which long obscured idle-capacity issues. After the separation, Foundry charges the product divisions market-based foundry fees, and all costs are fully reflected in a standalone income statement, allowing manufacturing efficiency to be assessed more accurately. In addition, the separate segment structure keeps customer data fully isolated from Intel’s product division, which is a prerequisite for winning external foundry clients’ trust.

Intel Foundry generated revenue of US$17.8 billion, up 3% YoY, but total costs reached US$28.1 billion, resulting in an operating loss of US$10.3 billion. Gross margin remained under pressure due to several overlapping factors: large-scale fab expansion in prior years pushed depreciation expense to US$10.7 billion; 18A process yields improved from roughly 20% to 30% at the beginning of 2025 to around 65% by year-end, but still fell short of the level needed for normal profitability; and weak external customer demand meant that a large amount of idle capacity could not be spread across enough volume, leaving gross margins below expectations.

Q1 2026 Takeaways: AI Momentum Accelerates, Profitability Steadily Recovering

Revenue in Q1 2026 came in at USD 13.6 billion, up 7% YoY, beating market consensus of USD 12.4 billion. AI-driven businesses led the quarter, with DCAI and Intel Foundry revenues rising 22% and 16% YoY to USD 5.1 billion and USD 5.4 billion respectively, validating management's earlier thesis on the AI demand transition. While Intel still reported an operating loss of USD 3.1 billion, excluding approximately USD 4.1 billion in one-off items comprising Mobileye goodwill impairment and restructuring charges, adjusted operating income has in fact turned positive, reflecting a steady recovery in underlying profitability.

Management characterised this quarter's results as marking Intel's formal transition from "survival mode" to an "accelerated execution phase." On the outlook for DCAI, CEO Lip-Bu Tan noted that AI computing is rapidly shifting from training towards inference and agentic AI. Agentic AI places greater emphasis on compute efficiency, memory capacity, and orchestration — areas where CPUs excel — rather than pure GPU parallel compute throughput. This shift has driven the CPU-to-GPU compute ratio from 1:8 up to 1:4 or higher, significantly boosting demand for Intel's AI CPUs (see Chart 3). Supported by the resulting improvement in average selling prices, DCAI operating profit reached USD 1.5 billion, with an operating profit margin of 31%.

Chart 3: Average GPU to CPU Ratio in Hyperscale inference Clusters

On the other hand, Intel Foundry also showed a positive inflection. Although external customer revenue was only USD 140 million and is still at an early stage, it already points to decent growth visibility. Support from the Trump administration, together with Intel’s solid progress on its advanced 14A process — where yield and performance have already surpassed the level seen at the same stage of 18A — has been encouraging. The company is also working with multiple external customers on the Process Design Kit (PDK), and said it now has production commitments of up to USD 15 billion, providing the much-needed external orders that Foundry has lacked. In addition, the 18A process formally entered high-volume production this quarter, with yield improvement running faster than internal expectations at around 7-8% per month, easing market concerns over yield bottlenecks. As a result, foundry operating margin narrowed to 45% (2025 March :49%), and management expects the business to reach operating breakeven by 2027.

Taken together, management raised its Q2 revenue guidance to USD 13.8 billion-14.8 billion, indicating that the recovery in AI computing demand has translated into tangible momentum. Profitability also showed a clear rebound in the first quarter, strengthening market confidence in the company’s long-term credit quality.

Net Gearing Remains Low, Providing Adequate Buffer for Capital Expenditure

As of the end of March 2026, Intel held a total cash balance of USD 33 billion (comprising cash and cash equivalents and short-term investments), with total debt of approximately USD 45.0 billion, resulting in net debt of USD 12.2 billion — a YoY decline of 57% (see Table 1). Net gearing also fell back to a healthy level of 9.8% (end of March 2025: 27.3%). The improvement in net gearing was primarily driven by USD 8.9 billion in cash equity investment injected by the US government through the CHIPS Act, as well as USD 6.2 billion in cash proceeds from the divestment of equity stakes in semiconductor supplier Altera and the NAND memory business.

The market has expressed concern that Intel's recent acquisition of Ireland's Fab 34 for USD 14.2 billion (USD 7.7 billion in cash + USD 6.5 billion in newly issued debt), combined with the inability to generate positive free cash flow, raises questions about whether Intel can sustain a healthy level of debt. However, upon completion of the acquisition, net gearing is expected to return to approximately 21%, which remains within a reasonable range for the industry (see Table 1). At the same time, while interest coverage remains low, we believe free cash outflow will improve further this year as business conditions recover and Capex pressure gradually eases. At the current level of debt, Intel still has sufficient buffer capacity while awaiting free cash flow to turn positive.

Table 1: Intel Credit Metric