Intel’s Stock Rally Stalls as Supply Constraints Cloud Outlook

Intel US4581401001

A disappointing forecast for the first quarter of 2026 has abruptly cooled investor enthusiasm for Intel. The company's latest update presents a stark contrast to the strong year-end performance and the high hopes surrounding its artificial intelligence business. The central issue is now clear: demand is robust, but Intel lacks the manufacturing capacity to fully capitalize on it. This combination of supply shortages and a tempered outlook raises significant questions about the pace of the chipmaker's ongoing recovery.

Intel's operational results for the fourth quarter of 2025 were initially well-received. Revenue of $13.7 billion exceeded both Wall Street's expectations and the company's own projection. The segment encompassing data centers and AI chips was a particular bright spot, generating $4.7 billion in sales and surpassing analyst estimates of $4.4 billion. On an adjusted basis, earnings per share came in at $0.15, nearly double the company's target of $0.08.

The pivotal disappointment, however, was the guidance for Q1 2026. Management's midpoint revenue projection of $12.2 billion fell short of the $12.6 billion analysts had anticipated. Furthermore, the company forecast earnings per share of approximately zero, compared to a consensus estimate of $0.08. This prompted an immediate and negative shift in market sentiment.

The share price reacted with a sharp decline. On Friday, Intel's stock closed at $45.88, marking a single-day loss of roughly 15.5%. This represents the most severe daily drop since August 2024 and a notable setback following the preceding advance.

AI Momentum Hampered by Production Shortfalls

The core problem is Intel's inability to fully meet the surging, AI-driven demand for server chips. Chief Executive Officer Lip-Bu Tan acknowledged that production efficiency continues to lag behind targets, preventing the company from fulfilling total customer demand at present.

Chief Financial Officer David Zinsner pointed to industry-wide semiconductor production bottlenecks. He indicated that Intel's available capacity is likely to reach its lowest point in the first quarter before the supply situation gradually improves starting in Q2. During the second half of 2025, Intel had largely depleted its inventory buffers to meet strong orders. That cushion is now gone, even as demand remains elevated.

This dynamic is delaying the anticipated financial rebound: products are in demand, but unit volumes remain constrained. Market observers characterize this as a turnaround story hampered not by a lack of interest from customers, but by limitations on the supply side.

Growing Skepticism on Wall Street

The reaction from financial analysts was predominantly critical, with several firms questioning the ambitious share price appreciation of recent months.

• Bank of America analyst Vivek Arya reaffirmed his "Underperform" rating, arguing the stock price is significantly higher than what Intel can currently justify with a competitive and profitable business model.
• Bernstein Research's Stacy Rasgon accused the company of having "significantly misjudged" demand in the data center sector and set a price target of $36.
• Analysts at TD Cowen commented that the recent rally had been "largely driven by a dream" rather than by short-term, robust fundamental data.

These assessments underscore that the market had priced substantial advance confidence into Intel's AI and turnaround narrative. The newly issued guidance is forcing investors to recalibrate those expectations.

Valuation Remains Stretched Despite Sharp Pullback

Despite the significant setback, the broader upward trend from the preceding months remains evident. In 2025, Intel shares gained 84%, substantially outperforming the semiconductor reference index, which rose 42%. The stock had also been strong in early 2026 prior to the earnings report, having climbed 47% in January before the release.

While the recent correction is severe, it follows an exceptionally powerful recovery. On a twelve-month view, the share price is still approximately 122% higher. With a price-to-sales ratio above 4 and a market capitalization of around $230 billion, the valuation remains demanding, especially in light of the near-term supply issues.

The recent closing price of $45.88 represents a decline of nearly 15.5% from the 52-week high of $54.29 reached on January 22. However, the stock remains far above its April 2025 lows of $16.61.

High Expectations Fueled by Major Investments

Investor expectations for Intel have recently been bolstered by several prominent capital infusions. The U.S. government provided $8.9 billion, supplemented by $5 billion from Nvidia and $2 billion from SoftBank. These funds are intended to accelerate the company's transformation and strengthen its competitiveness in AI and foundry operations.

Many investors had hoped for greater clarity regarding the foundry business—manufacturing chips for external clients. CEO Tan stated that two potential customers are currently evaluating the upcoming 14A manufacturing technology, with decisions expected by late 2026 or early 2027.

Analysts continue to counsel patience. RBC Capital Markets assumes that "meaningful revenue contributions" from 14A customers are not expected until the end of 2028 at the earliest. Analysts at Jefferies remain cautious, citing a lack of a clear roadmap amid ongoing market share losses, an undefined AI strategy, and uncertain prospects in manufacturing and packaging.

Recovery Hinges on Ramping Capacity

From an institutional investor perspective, the situation is contradictory. Michael Schulman of Running Point Capital encapsulates the view by describing Intel's turnaround as "supply-driven, not demand-driven." Products are attracting strong customer interest, but supply bottlenecks are delaying the financial upside.

The priorities for the coming quarters are clearly defined. Intel anticipates that the supply situation will begin to improve in the second quarter of 2026 and gradually ease throughout the rest of the year. If this stabilization of supply chains is achieved, management expects robust growth in the data center and AI businesses as server demand continues to accelerate. Whether the stock can resume its previous rally will therefore depend primarily on the actual alleviation of capacity constraints and the successful execution of foundry plans in the coming years.