J.P. Morgan: Intel’s data center growth fails to offset PC decline; JPMorgan cuts 2027 earnings forecast

Why cut forecasts after a third-quarter beat?

Intel’s revenue in the third quarter of 2026 was 16.5 billion dollars, roughly in line with market expectations; adjusted earnings per share were 0.52 dollars, above the market estimate of 0.40 dollars. Gross margin was 44.1%, approximately 2 percentage points above market expectations, benefiting from lower process costs and an improved product mix.
However, the company guided for fourth-quarter revenue of 15 billion to 16 billion dollars, with a midpoint of 15.5 billion dollars, below market expectations of approximately 17 billion dollars. JPMorgan cut its 2027 revenue forecast from 77.7 billion dollars to 67.2 billion dollars and its adjusted earnings per share forecast from 2.44 dollars to 1.68 dollars.
The bank maintained its neutral rating and lowered its December 2027 price target from 85 dollars to 80 dollars. Its valuation applies a price-to-earnings multiple of approximately 25 to its annualized forecast of 0.79 dollars in earnings per share for the fourth quarter of 2028.

Third-quarter PC client business revenue was 8.1 billion dollars, down 9% sequentially; the company expects revenue in the business to fall by more than another 20% sequentially in the fourth quarter. Management expects PC market shipments to fall 12% in 2026 and 10% in 2027, with customer inventory reductions continuing at least through the first quarter of 2027.
The temporary shutdown of Fab 28 in Israel is expected to reduce fourth-quarter revenue by approximately 300 million dollars and could have a similar effect in the first quarter of 2027. The company’s fourth-quarter gross margin guidance is 38%, down approximately 6.1 percentage points from the third quarter; reduced fixed-cost absorption from lower production, product mix and the impact of the Israeli factory each account for roughly one-third of the decline.
The Israeli factory’s approximately 2 percentage-point drag on gross margin is concentrated mainly in the fourth quarter; JPMorgan expects gross margin to recover to approximately 40% in the first quarter as most of the related scrappage impact fades.

Third-quarter data center and artificial intelligence business revenue was 7.3 billion dollars, up 17% sequentially, driven jointly by demand from cloud computing, enterprise and emerging cloud customers; ASIC revenue rose more than 50% sequentially. The company expects the business’s fourth-quarter revenue to rise sequentially by a percentage in the mid-teens, partially offsetting the PC business decline.
Third-quarter foundry revenue was 6.7 billion dollars, and its operating loss narrowed to 1.9 billion dollars from 2.3 billion dollars a year earlier. Intel 3 and 18A costs have fallen approximately 15% and 40%, respectively, since the first quarter, with yield improvements ahead of plan; however, external foundry revenue was 411 million dollars, and the sequential increase came mainly from one-time customer projects.
JPMorgan believes improved execution in data center CPUs and advanced processes supports the long-term outlook; one key to further improving foundry economics is securing named external anchor customers for advanced nodes.

The company said capital spending in 2027 will rise substantially from approximately 20 billion dollars in 2026; JPMorgan expects approximately 26 billion dollars, citing faster construction of Fab 62 in Arizona and consideration of a further acceleration of the Ohio project.
JPMorgan expects operating cash flow of approximately 19.4 billion dollars in 2027, below its capital spending forecast of 26 billion dollars, with negative free cash flow. Intel had approximately 54 billion dollars in cash and equivalents at the end of the third quarter, and the company’s 23 billion dollars equity financing in August was used to support its expansion plans.