HSBC bullish on Intel server CPUs: offsetting client weakness, with foundry progress supporting valuation

How far above market expectations is the third-quarter forecast?

HSBC forecasts Intel’s third-quarter 2026 revenue at 17 billion dollars, above the company’s guidance of 15.8 billion to 16.8 billion dollars and the market consensus of 16.4 billion dollars compiled by Visible Alpha. The company plans to report results on 29 October.
The bank forecasts fourth-quarter revenue of 18.3 billion dollars, up 7% quarter on quarter, above the market consensus of 16.9 billion dollars and approximately 3% sequential growth. HSBC still expects both results and subsequent guidance to beat expectations, although by a narrower margin than in the previous two quarters.

Intel is reallocating capacity to server CPUs. HSBC therefore expects client revenue to decline in the second half of 2026, with its third- and fourth-quarter client revenue forecasts approximately 10% and 14% below market consensus, respectively; growth in the server business is sufficient to make up the shortfall.
After the second-quarter results, the market raised its 2027 revenue forecast for the data center and artificial intelligence business (DCAI) by 18%. HSBC still believes the growth potential is underestimated: it forecasts 2027 revenue of 36.7 billion dollars, 9% above the consensus of 33.6 billion dollars.
This forecast depends on growth in both shipments and prices. HSBC expects server CPU shipments of approximately 24.46 million units in 2027, up 21% year on year, and an average selling price of 1364 dollars, up 10% year on year. If shipments or price increases are weaker than expected, earnings could come under pressure.

HSBC believes AI-driven demand exceeds supply, with constraints across wafers, advanced packaging and memory. Among these, ABF substrates constrain Intel’s server CPU output more than wafer supply does.
To secure components such as substrates in advance, Intel had prepaid suppliers 934 million dollars from the start of the year through the report’s publication and signed long-term supply agreements. HSBC believes this can support server CPU capacity and benefit advanced packaging, although Intel is still addressing yield challenges associated with large masks for EMIB-T packaging.

HSBC believes Intel is seeing increasing customer engagement in both front-end wafer foundry services and advanced packaging, and that EMIB-T advanced packaging could generate external foundry revenue before front-end manufacturing. The bank expects related progress to continue from the second half of 2026 into 2027.
Intel previously confirmed that it would deliver version 0.9 of its process design kit to external foundry customers in the second half of 2026. HSBC believes a positive update on the third-quarter earnings call could be a catalyst.
The timing is also uncertain: HSBC noted that the mass-production ramp-up of Google TPU v9 at MediaTek could be delayed until the end of 2027 or even 2028, but still believes multiple companies are engaging with Intel about EMIB-T capacity for 2027 to 2028.

HSBC maintains its buy rating and 200 dollar price target, approximately 121% above the closing price of 90.47 dollars on 26 October 2026. In its sum-of-the-parts valuation, the core business accounts for approximately 125 dollars at 30 times forecast 2027 earnings, while the foundry business accounts for approximately 75 dollars at 3.1 times forecast book value.
The bank forecasts a negative 10.6% non-GAAP operating margin for the foundry business in 2027, with the overall 18.9% margin supported mainly by the core business. HSBC’s foundry price-to-book multiple is slightly above the 2027 average of 2.6 times for second-tier foundries, and it is watching for customer confirmations and improvement in foundry margins. Greater-than-expected margin dilution from foundry capacity expansion is also a downside risk.