Key Points
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Intel’s data center segment earned $3 billion in operating profit, versus $2.3 billion for the client segment.
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A factory accident and PC inventory cuts are pressuring fourth-quarter sales and margins.
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The server CPU market could grow as much as fivefold over five years, according to management.
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Shares of Intel (NASDAQ: INTC) were trading down 31% the day after the chipmaker reported its fourth-quarter outlook on Oct. 30. Weak PC chip sales grabbed the headlines, but this overshadowed an important milestone in the data center business.
Several factors contributed to the stock’s sudden plunge. An accident shut down Intel’s Israel factory, expected to cost about $300 million in fourth-quarter revenue and 2 percentage points (200 basis points) of gross margin. PC makers are also cutting inventory, which management expects to contribute to a more than 20% sequential decline in client computing segment sales next quarter.
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The PC slump seems to be the biggest concern weighing on the shares. CEO Lip-Bu Tan said, “In recent weeks, our customers began signaling a PC slowdown based on the memory prices and availability.” Management expects industrywide PC units to fall about 12% in 2026.
But Intel just hit a key milestone. Most of its profit now comes from the data center and artificial intelligence segments, where revenue jumped 78% from a year ago. This segment earned $3 billion in operating profit last quarter, or 42% of revenue. By comparison, the client segment earned $2.3 billion, or 28% of revenue.
That gap could widen. Tan said graphics processing units (GPUs) are great at the “thinking” in artificial intelligence (AI) workloads, but traditional processors (CPUs) are far more energy-efficient for running AI agents. He believes the server CPU market “could increase as much as five times from where it is today,” from $40 billion to more than $200 billion over five years.
Still, at about 42 times forward earnings, the stock isn’t cheap for a business split between booming servers and a weak PC market. If the PC correction drags on, lower sales could pressure the company’s margins, limiting the stock’s upside over the next year.
Over the long run, short-term pain in PCs could be masking a decade of server growth. That’s why, if the stock continues to fall, it might create a more attractive entry point for new investors.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.
