Why Intel's Strongest Data-Center Growth in 15 Years Wasn't Enough

Intel reported a stronger-than-expected third quarter that laid bare a split company: the parts Wall Street has doubted the most are finally accelerating, while the old PC cash engine is sliding. In a release the company said revenue came in at $16.5 billion, up 21% year-over-year, with non-GAAP EPS of $0.52 (up from $0.23 a year earlier) and a non-GAAP gross margin of 44.1%, a 4.1 percentage point improvement.

Where the growth is

The data-center and AI business led the quarter, with DCAI revenue at $7.3 billion, a 78% year-over-year increase that CFO David Zinsner called "our strongest data center revenue growth in 15 years." The foundry business also posted a large percentage gain, with Intel Foundry revenue reported at $6.7 billion, up 58% year-over-year. Those are real momentum signals: faster server CPU unit growth across the industry and rising foundry volumes are the two operational narratives Intel has been trying to prove out.

The company flagged industry-level demand that supports that growth: management said it expects industry server CPU units to grow more than 30% in both 2026 and 2027, which helps explain the DCAI strength. At the same time, the foundry unit remains loss-making on a GAAP operating basis, though the operating loss is narrowing. Intel reported the foundry operating loss at $1.9 billion, an improvement of $236 million sequentially, according to the earnings transcript.

Where the pain is

That progress was not enough to offset weakness elsewhere. Client Computing and the Physical AI Group (CCPG), the part that includes PC chips, still generated $8.1 billion in revenue but declined 5% year-over-year. Management warned the PC slowdown will persist: Zinsner said "we see the PC slowdown continuing at least through the first half of next year," and Intel now expects the 2026 PC unit total addressable market to decline about 12%, with second-half units down more than 20%.

Beyond the secular PC decline, Intel disclosed a discrete supply hit: an October explosion at Fab 28 in Israel will cost roughly $600 million in lost revenue over two quarters, about $300 million of that in Q4. Those two pushes, softer PC unit demand and a near-term factory revenue hit, help explain why the company set conservative guidance for Q4. Management guided revenue of $15.0 billion to $16.0 billion and non-GAAP EPS of $0.25 in its filing.

How the market reacted

Markets focused on that guidance. Analysts polled by LSEG had expected $17.1 billion and adjusted EPS of $0.43, so the guide landed well below the street. Intel shares fell more than 20% in extended trading after the report, a reaction that treated the near-term PC cycle and the Fab 28 hit as dominant risks even as DCAI and foundry returned strong top-line growth. The quarter did beat near-term consensus on a handful of measures: Q3 adjusted EPS of $0.52 topped an expected $0.40, and revenue was roughly in line with the $16.5 billion estimate reported by market outlets.

There are other balance-sheet and capital moves in play. Intel completed a $23 billion equity offering in August, and the company reiterated that 2026 gross capital expenditures remain on track to be $20 billion. CEO Lip-Bu Tan said he is "disappointed that we were not able to meet strong customer demand in this quarter," a reference to supply-side misses even as demand in some pockets exceeded expectations.

What to watch next

Two concrete dynamics will determine whether the market keeps punishing the stock or starts to reward the turn. One is the PC cycle: if unit declines remain substantial through the first half of next year, corporate guidance and near-term revenue will be constrained regardless of DCAI strength. The other is execution at scale in foundry and data center deployments, where Intel needs to convert strong percentage growth into durable profit improvements; management already showed a sequential narrowing of the foundry operating loss.

Finally, watch for how one-time hits and capital moves shape near-term numbers. The Fab 28 disruption is a tangible revenue headwind in Q4, and the $23 billion equity raise and $20 billion capex plan are both facts the market will fold into expectations about dilution, investment pace, and the timing of profitability gains from newer businesses.

For now, Intel's quarter reads like a company shifting its center of gravity. The businesses investors worried about most are finally delivering outsized growth, while the legacy business still determines how the market values the company in the next few quarters. That mismatch between near-term market focus and midterm strategic progress is what sent the stock down even as the company reported its strongest DCAI growth in 15 years.