Is Intel (INTC) Stock a Buy Before Q2 Earnings?

The parabolic AI trade has sent many chip stocks to the moon, as investors have bet that hyperscalers such as Google, Microsoft, Amazon, and Meta will continue to aggressively expand AI capital expenditures. However, the rally now faces significant headwinds, with valuation and revenue sustainability concerns resurfacing amid rising competition from cheaper Chinese models.

The major stock benchmarks recorded weekly losses on Friday, July 17, with the S&P 500 down 1.6%, the NASDAQ down 2.9%, and the Dow falling 0.9% over the week. Chip stocks dragged down the market, with the VanEck Semiconductor ETF (SMH) posting its third weekly decline over the past month. SMH has fallen roughly 9% over the said period.

The sector further came under investor radar when Chinese startup Moonshot AI launched its latest model, claiming it closes the gap with some of the leading models from US AI developers.

Angelo Kourkafas, senior investment strategist at Edward Jones, told CNBC, "The latest development is competition from open-source models in China, which are reportedly rivaling the performance of leading offerings from Anthropic and OpenAI, raising fresh concerns about the heavy pace of technology spending."

Considering these concerns, UBS estimates the hyperscalers' capex to slow down to 25% next year and 6% in 2028 after rising sharply to 76% in 2026.

Intel Corporation (NASDAQ:INTC) sits in the middle of this turbulence, but with a twist: shares are still up more than 311% over the trailing 12 months even after a roughly 30% pullback from June's highs. The question for investors isn't whether Intel can survive an AI-spending slowdown — it's whether the company's political backing, a reported preliminary manufacturing agreement with Apple, and the upcoming earnings report are enough to keep a turnaround story alive when the broader chip trade is losing conviction.

In August 2025, the White House took on fixing Intel as its pet project and converted $9 billion in federal grants into a 10% ownership stake. The Trump Administration even convinced tech giants, including Apple, Nvidia, and SpaceX, to work with the chipmaker. Later, Intel reportedly reached a preliminary agreement to manufacture some Apple-designed chips.

As per Intel, Washington's stake in the company is structured as passive ownership with no board seat, and the government must vote with Intel's board on shareholder matters, with unspecified "limited exceptions." The deal also includes a five-year warrant at $20/share for an additional 5% stake, which the government can exercise only if Intel loses control of its foundry business.

The Trump administration has made Intel's recovery a national economic and security priority as it wants the US to reduce reliance on Taiwan's TSMC for chips. While federal backing may buy Intel's loss-making foundry more runway to find its footing, a bigger question remains unanswered.

Can Intel close the gap with its competitor, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)?

TSMC is currently the world's biggest chipmaker. In Q1 2026 alone, the company grew its revenue by 41% year-over-year to $35.9 billion. In comparison, Intel's foundry business during the same quarter only delivered $5.4 billion in revenue, reflecting 16% year-over-year growth. Of this, only $174 million came from external customers.

Despite Intel's progress in the foundry business with two flagship chips (Panther Lake and Clearwater Forest) built on its 18A process, TSMC's 2nm process remains superior. Reports suggest 18A process nodes may face lower-than-anticipated yields, with estimates currently between 65% and 75%, well below the 90% threshold for optimal profitability.

Moreover, while Intel has been signing new deals to build processors for major companies including SpaceX, Tesla's Terrafab data center project, and Alphabet, TSMC still manufactures 90% of the world's AI processors.

In terms of valuation, Intel trades at around 100 times forward earnings, while TSMC trades at almost the sector median of only 24 times forward earnings. The valuation and earnings gap suggest Intel needs to deliver growth over the next 3 years to make its valuation more reasonable.

Despite the valuation concerns, Wall Street is optimistic about Intel's turnaround story as it approaches Q2 2026 earnings. The company is set to release earnings next week after market close on July 23. Management is forecasting revenue at $14.3 billion at the midpoint with gross profit margins of 37.5%. More importantly, the company is forecasting a return to profitability with EPS of $0.08.

Intel has been losing money on the bottom line in most of the quarters over the past 5 years. This was mainly due to the heavy investment in building up the foundry business and capacity. However, it has not been able to fulfill the capacity available at its disposal just yet.

Recently, Stifel raised the price target on INTC on July 10 from $75 to $120, while keeping a Hold rating. The firm noted Intel to be in a process of transformation and expects the company to deliver results in line with or modestly above expectations. Stifel emphasized that the longer-term story matters more for Intel at this stage of its transformation.