Evercore ISI: Intel’s server business beats expectations, while weak PCs weigh on fourth-quarter guidance

Why was the third quarter a mixed picture?

Intel reported third-quarter 2026 revenue of 16.513 billion dollars, slightly below the market estimate of 16.555 billion dollars; non-GAAP earnings per share were 0.52 dollars, above the market estimate of 0.41 dollars.
By business, data center and AI (DCAI) revenue was 9.4% above market expectations, while client business revenue was 9.5% below expectations: higher memory prices weakened consumer PC demand.

Management expects global PC market shipments to decline by about 12% in 2026, with a decline of more than 20% in the second half; a further decline of about 10% is expected in 2027. Evercore ISI expects weakness in the client business to persist at least through the first half of 2027, though a higher mix of premium products could support average selling prices.
The midpoint of the company’s fourth-quarter 2026 revenue guidance was 15.5 billion dollars, below the market estimate of 17.29 billion dollars; its gross margin guidance was 38%, below the expected 42.3%. Weaker client shipments, a disruption at its Israel factory and a lower margin contribution from the custom-chip business all weighed on gross margins.
Evercore ISI cut its 2027 revenue forecast from 91.318 billion dollars to 70.865 billion dollars, still above its forecast of 61.604 billion dollars for 2026. The firm expects DCAI to become Intel’s largest business segment starting in the fourth quarter of 2026.

Evercore ISI believes that AI agents need more CPU coordination as they handle longer queries. Assuming AI accelerator shipments grow at a 30% compound annual rate over the next five years, and two CPUs are paired with each GPU, the firm estimates the 2030 AI server CPU market at about 223 billion dollars; including non-AI server CPUs, the total market would be about 275 billion dollars.
Management expects industry server CPU shipments to grow by more than 30% annually in 2026 and 2027, but tight wafer and substrate supply is expected to persist through 2027 and 2028. Intel has shifted some Intel 10 and Intel 7 process capacity from client products to servers.
The temporary closure of the 10-nanometer factory in Israel is expected to reduce fourth-quarter DCAI revenue by 300 million dollars, with the impact extending into the first quarter of 2027. Evercore ISI still expects the business’s fourth-quarter revenue to grow by a percentage in the teens quarter over quarter, and says management expects growth in 2027 to be weighted toward the second half.

Evercore ISI estimates that, as work in progress already funded but not yet operational is gradually converted into equipment capacity, and product transitions free up production lines, Intel could add about 3.4 million server CPUs of quarterly capacity by the end of 2026, around 80% above current levels.
The firm maintained its Outperform rating and 131-dollar price target, based on a base-case 2030 earnings-per-share estimate of 6.37 dollars, a price-to-earnings multiple of 30 times, and discounting over four years at 10%. The base case includes Intel capturing about one-third of the relevant CPU market and foundry revenue reaching 25 billion dollars in the 2030s; weaker-than-expected adoption of server CPUs or intensifying data center competition would affect this view.