Intel Shares Drop 14% on Chip Sector Rotation

What happened

Intel shares fell 9% on Wednesday to $127.02, then another 5% on Thursday to $120.35, despite receiving analyst upgrades during the same period. HSBC raised its price target to $200 from $100, citing the foundry business as *too good to ignore*, while Cantor Fitzgerald lifted its target to $150 from $90. The declines occurred alongside broader selling in chip stocks, with the VanEck Semiconductor ETF falling more than 5% and Advanced Micro Devices dropping 5%. The pullback followed a 270% rally in Intel shares during the first half of 2026, driven by optimism around the company's foundry turnaround and reports of preliminary manufacturing agreements with customers including Apple, Tesla, SpaceX, and Alphabet's Google. Intel ended June at $139.63, near its 52-week high of $142.35 and far above its 52-week low of $18.97. The U.S. government holds roughly a 10% stake in Intel through an $8.9 billion investment, and Nvidia completed a $5 billion investment in December at $23.28 per share.

Why it matters

The sharp pullback tests how much of Intel's foundry turnaround investors have already priced in, with the company now carrying a market capitalization of about $638 billion - roughly 12 times its revenue run rate - for a business not yet profitable. Intel posted a GAAP loss of $0.73 per share in the first quarter, with its foundry segment alone recording an operating loss of $2.4 billion, though that loss is narrowing. External foundry revenue - sales to customers other than Intel itself - totaled just $174 million in the first quarter, meaning the entire rerating depends on this figure growing substantially. First-quarter revenue rose 7% year over year to $13.6 billion, and foundry revenue grew 16% to $5.4 billion, while non-GAAP gross margin improved 1.8 percentage points to 41%. Management guided for second-quarter revenue of $13.8 billion to $14.8 billion, with analysts expecting earnings of 19 cents per share, reversing a year-ago loss of 10 cents, on revenue of about $14.4 billion. The official analyst consensus price target of $88.63 remains well below recent trading levels, though recent upgrades from Goldman Sachs at $150 and Bank of America at $160 reflect growing optimism.

Bigger picture

The semiconductor sector delivered exceptional gains in the first half of 2026, with the VanEck Semiconductor ETF closing out its best quarter on record with a 71% gain. The broad pullback across chip stocks followed a report that Meta Platforms may sell excess artificial intelligence computing capacity, raising questions about sustained AI infrastructure demand. Intel's turnaround centres on CEO Lip-Bu Tan's strategy to make the foundry business competitive with Taiwan Semiconductor Manufacturing, which would remain Apple's main chipmaker even if the preliminary Intel agreement materialises. UBS projected that AMD's annual server CPU revenue could reach $50 billion by 2030 on agentic AI demand, while Cantor Fitzgerald cited a generational AI-infrastructure buildout that could push industry revenue to roughly $3 trillion by 2029. Intel announced in June that its next-generation 18A-P manufacturing process entered early production, and disclosed engagements with TPIsoftware, which adopted Intel Xeon 6 processors and Intel Arc Pro B60 GPUs for enterprise AI on June 23.

What to watch

Intel's July 23 second-quarter earnings report will be critical for determining whether foundry customer engagements are converting to formal commitments and revenue. Investors will focus on progress with 18A manufacturing yields and volumes, updates on external foundry revenue beyond the $174 million reported in Q1, evidence of narrowing foundry losses, and any formal confirmation of the preliminary Apple chip manufacturing agreement. Management has indicated that foundry customer commitments could materialise in the second half of 2026, with HSBC expecting foundry engagements to convert during that period and server CPUs to drive earnings in 2026 and 2027. Technical analysts see shares potentially consolidating in a range between roughly $113 and $134 ahead of the earnings announcement.