On Thursday evening, Intel told investors that its data center revenue had just grown at its fastest pace in 15 years. On Friday, the first trading day after the results, its shares fell 28.6%, while the S&P 500 fund fell 1.8%. Yahoo Finance reported after the close that the chipmaker's outlook "just handed the stock its worst day in more than half a century." During the day, Reuters, in a report carried by Hong Kong's The Standard, said Intel "was on track for its sharpest one-day decline," and Silicon Republic reported that the shares had already dropped in trading before the market opened.
The reason, all three said, was not the quarter Intel had just finished. It was the one it has just started. Intel expects sales to shrink this quarter as personal computers, still its biggest business, get caught in a shortage of memory chips that AI data centers are soaking up.
The story matters beyond one company. Intel's own filings show a business split in two: servers selling as fast as Intel can make them, and PCs that fewer people are buying because the memory inside them costs more. The quarter showed which half the market was watching.
A good quarter
Intel's revenue rose 21% from a year earlier to $16.5 billion, its earnings release says. Net income fell 18% to $3.3 billion, Yahoo Finance reported, or $0.60 a share. On the adjusted basis Intel prefers, which leaves out some one-time items, it earned $0.52 a share. "Revenue, gross margin and earnings per share exceeded guidance," chief financial officer David Zinsner said in the release.
The growth came from the data center. Revenue from Intel's Data Center and AI group rose 78%, its quarterly report on Form 10-Q says, "driven by a higher mix of premium products sold, with demand-based pricing actions contributing to a lesser extent." In plain terms: customers bought more of Intel's most expensive server chips, and Intel raised some prices. The group's revenue reached $7.3 billion, International Business Times reported. The number of server chips sold grew far less: "Server volume increased 10% compared to Q3 2025, driven by higher hyperscaler demand," the 10-Q says, meaning the giant cloud companies.
Intel Foundry, the factory business Intel hopes will one day make chips for other companies, still lost money. Its operating loss was $1.9 billion, against $2.3 billion a year earlier. Its sales to outside customers were $411 million, the 10-Q says, mostly "due to revenue recognized under a non-recurring foundry contract."
The PC problem
The trouble was already visible inside the quarter. Revenue from the client group, which sells chips for laptops and desktops, fell 5% to $8.1 billion. Within it, PC chip revenue was $6.9 billion, "driven by a 14% decrease in volume due to lower demand and a competitive market environment," the 10-Q says. Intel sold fewer chips and charged more for each one.
The 10-Q explains what is happening to demand: it "declined in Q3 2026 as compared to the first half of 2026 due to industry-wide impacts from higher component prices, particularly memory, constrained IT budgets and tighter inventory management." The next sentence is the one that moved the market: "We expect these trends to worsen in Q4 2026 and persist in 2027."
Memory chips cost more because the companies that make them are putting their factories to work on memory for AI servers. "AI data centers are soaking up the world's memory chips, pushing up prices for laptops and desktops," Yahoo Finance wrote. Intel now expects the PC market to shrink 12% this year and another 10% in 2027, according to International Business Times; Yahoo Finance reported the same forecast. Chief executive Lip-Bu Tan said the company expects current conditions to last "until memory availability and prices begin to normalize." Zinsner said the pressure "intensified during Q3, particularly late in the quarter, and resulted in a meaningful adjustment in customer purchasing patterns," 24/7 Wall St. reported.
What Intel expects next
For the fourth quarter, Intel is "forecasting fourth-quarter 2026 revenue of $15.0 billion to $16.0 billion," its release says, and adjusted earnings of $0.25 a share. Analysts had expected about $17.07 billion in revenue and 43 cents a share, Reuters reported, citing LSEG data; Yahoo Finance put the expectations at roughly $17 billion and $0.43. Reuters reported that Intel expects PC chip sales "to decline more than 20 percent sequentially this quarter," meaning compared with the third quarter.
A factory accident adds to it. "In mid-October 2026, an accident at our manufacturing facility in Kiryat Gat, Israel resulted in employee casualties and injuries and halted manufacturing operations at the facility," the 10-Q says. The explosion killed two people, Reuters reported, citing media reports. The plant had been shut for about two weeks and was expected to restart by the end of October, the filing says. Zinsner told Reuters that Intel lowered its fourth-quarter revenue outlook by about $300 million, and Yahoo Finance reported that the accident will cost about $300 million in fourth-quarter revenue. Intel told Reuters it expects about $600 million of lost revenue over two quarters.
Then there is cash. Zinsner said Intel does not expect positive cash flow this year, according to Reuters. International Business Times reported that management does not expect positive free cash flow in 2027 either, as capital spending rises; the reports differ on which year he meant, and Intel's filings don't settle it. Intel raised $22.6 billion after costs by selling new shares in August, the 10-Q says, and after the quarter ended it signed two deals to secure substrates, the base that chips are packaged on, under which it expects to pay about $3.3 billion by the end of 2027.
Source: SEC EDGAR XBRL data
How the market read it
Intel's shares had more than doubled this year before the report, Reuters noted. "I think we entered earnings season with the market in a pessimistic mood. No result is good enough, and bad results receive extra punishment," Seaport Research Partners analyst Jay Goldberg said, Reuters reported. Bernstein analyst Stacy Rasgon called the outlook "(in a word) terrible," Yahoo Finance reported.
The drop spread. Other chip stocks and computer makers fell too, Reuters and Yahoo Finance reported, as investors "grew increasingly wary of weakening PC demand and the vast spending required to build out AI infrastructure," in Reuters' words. "The market is in a sell first, ask questions later mood right now, and Intel's warning has given investors an easy excuse to take some money off the table across chip stocks," said Matt Britzman of Hargreaves Lansdown.
Tan did not play down the problems. "I'm disappointed that we were not able to meet strong customer demand in this quarter," he told analysts, Reuters reported. "We face near-term challenges, including manufacturing supply shortages, the unprecedented memory crunch, and the resulting softness in PC demand." In the release he struck a firmer note: "Despite near-term headwinds across the PC industry, demand for our CPUs remains robust."
What it adds up to
This is analysis, not advice. Intel's quarter shows how the AI boom can help and hurt the same company at once. The servers that run AI need Intel's processors, and Intel says demand for them still runs ahead of what it can supply. But the same boom has made memory scarce, and that is pushing up the price of an ordinary laptop until fewer people buy one. For a company that still earns about half its revenue from PCs, as Reuters noted, the second effect can outweigh the first.
Intel's own words point to the signs to watch. If memory prices ease and PC makers start ordering again, the company's warning that weakness will "persist in 2027" will prove too gloomy. If the shortages of "substrates, memory and other critical components" last as long as Intel expects, the data center business will keep growing only as fast as Intel can get the parts. Zinsner put the timing plainly in the release: "we see the PC slowdown continuing at least through the first half of next year."
"Rebuilding Intel is going to be a multiyear journey," Tan said on the call, Yahoo Finance reported. On Friday, the market was reminded how long a year can be.