Bernstein: Intel server growth fails to offset PC destocking as fourth-quarter guidance falls well short of expectations

Which businesses drove third-quarter results?

Intel reported third-quarter 2026 revenue of $16.5 billion, broadly in line with market consensus; non-GAAP earnings per share were $0.52, above the consensus of $0.40. Gross margin was 44.1%, above the consensus of 42.0%, benefiting from improved Intel 3 and 18A costs and a better product mix.
Data Center and AI revenue was $7.318 billion, up 78% year over year and above the consensus of $6.675 billion, with demand continuing to exceed supply. Client revenue was $8.097 billion, down 5% year over year and below the consensus of $8.819 billion; the company said customers accelerated inventory adjustments toward the end of the quarter as end-market sales slowed.

The midpoint of Intel’s fourth-quarter revenue guidance was $15.5 billion, below market consensus of $17 billion and down approximately 6% from the third quarter. The company expects Data Center and AI revenue to rise by approximately a mid-teens percentage sequentially to $8.4 billion, but expects client revenue to fall more than 20% sequentially to approximately $6.3 billion, well below the consensus of $8.4 billion.
Memory shortages are affecting the PC market, while original equipment manufacturers are rapidly cutting inventories. Management expects destocking to continue into the first quarter of 2027, with shipments matching end demand around the second quarter; the company also expects global PC shipments to fall 12% year over year in 2026 and a further approximately 10% in 2027.
There are already signs of inventory pressure: data cited by Bernstein show that PC CPU shipments exceeded PC shipments by 10.5% in the second quarter, compared with a gap of approximately 2% in the first quarter; Intel’s own inventory rose sequentially to $13.1 billion at the end of the third quarter, with inventory days rising from 120 in the prior quarter to 127.

The company’s fourth-quarter non-GAAP gross margin guidance was 38%, below market consensus of 42.8% and down approximately 6 percentage points from the third quarter. Management attributed the decline roughly equally to three factors: lower revenue, the impact of scrapped production following a recent incident at its Israel fab, and a weaker product mix.
Bernstein believes Intel still faces a mismatch between excess PC capacity and insufficient server capacity. The company plans to add capacity for Intel 3 and other processes, but the data center business remains supply-constrained; capital expenditure guidance for 2026 remains at approximately $20 billion, with a substantial increase expected in 2027.
The data center business’s overall gross margin is above the company average, but a growing share of custom chips and the shift of more products to Intel 3 will both reduce the business’s own gross margin.

Bernstein believes improving yields on new processes, progress in talks with foundry customers, and new businesses such as ASICs and packaging remain long-term supports for Intel, but the transformation is still at an early stage. Third-quarter foundry revenue was $6.697 billion, with an operating loss of $1.853 billion; external foundry sales were $411 million, with the sequential increase coming mainly from a non-recurring customer project.
The firm cut its 2027 revenue forecast from $73 billion to $68.9 billion and its non-GAAP earnings-per-share forecast from $2.19 to $1.78; its model incorporates large-scale PC CPU destocking in the fourth quarter and the first quarter of next year, and assumes a 10% rebound in the PC market in 2028.
Citing increased uncertainty in the outlook, Bernstein reduced its valuation from approximately 8 times to an enterprise value multiple of approximately 5 times average expected revenue for 2027–2028, cut its price target from $110 to $75, and maintained its Market Perform rating.