Intel Data Center Revenue Soars 78% But Memory Crunch Tanks Stock

Shares of Intel are getting hammered in pre-market trading after the Santa Clara chip maker posted a softer-than-expected outlook as part of its third-quarter earnings summary. Concerns over the state of the consumer PC market and the lingering memory shortage are evidently overshadowing Intel's strongest data center revenue in 15 years, with the company reporting a whopping 78% year-over-year jump to $7.3 billion.

That figure also represents a $1 billion sequential uptick for its Data Center and AI (DCAI) division, fueled by strong demand from hyperscalers, server-grade processing hardware, emerging cloud providers, and overall enterprise spending.

AI infrastructure spending is helping drive the momentum, with Intel's Xeon processors playing a major role in supporting AI workloads. Related, the company says Granite Rapids has become its largest server CPU family, while Clearwater Forest is shipping to paying customers and Diamond Rapids remains on track to ramp in 2027, followed by Coral Rapids in 2028.

There is a catch, though. Intel says demand for its data center products continues to outstrip available supply, with an industry-wide shortage of advanced organic substrates used in EMIB packaging limiting how quickly it can ramp production.

“Despite near-term headwinds across the PC industry, demand for our CPUs remains robust, reinforcing our confidence in the long-term growth opportunities for our business. Our immediate priority is to unlock additional supply to meet extraordinary demand for our Intel Xeon family, while strengthening our product portfolio and roadmap. We are moving with urgency and focus to capitalize on these opportunities to deliver sustainable growth and long-term shareholder value,” said Intel CEO @LipBuTan1. Read more in our Q3 2026 earnings report: https://t.co/54P5zNYmMy

— Intel (@intel) October 29, 2026

Still, Intel's DCAI division looks to be in solid shape. Meanwhile, Intel Foundry generated $6.7 billion in revenue, up 58% year-over-year on better-than-expected growth on Intel 3 and Intel 18A. Intel CEO Lip-Bu Tan says "Intel Foundry execution continued to improve consistently," though the business remains unprofitable, with the unit posting an operating loss of $1.9 billion, an improvement of $236 million sequentially.

"Intel 18A yields continue their upward trajectory to industry-standard levels ahead of our internal projections. Since Q1, Intel 18A client CPUs have grown from less than 5% of revenue to now nearly one-third of client CPU revenue. These results represent meaningful progress, although we still have considerable work ahead of us to deliver a sustainably profitable Foundry business," Intel CFO Dave Zinsner stated during an earnings call.

The picture looks less optimistic on Intel's client side. Intel's Client Computing and Physical AI Group (CCPG) slid 5% year-over-year and 9% sequentially to $8.1 billion. The firm blames much of the weakness on soaring memory prices, component shortages, and strained IT budgets. PC makers are also trimming inventories as demand softens.

What likely spooked investors, however, is that Intel does not expect a quick turnaround. Instead, the company now forecasts a roughly 12% decline in PC unit shipments across the industry this year, followed by another 10% drop in 2027. It also expects its own client revenue to decline by more than 20% sequentially in the fourth quarter.

"Looking ahead, we see the PC slowdown continuing at least through the first half of next year, but we remain optimistic about the opportunities across our broader portfolio, and we will continue making disciplined investments in capacity and working capital to increase supply and support future growth," Zinsner said.

Overall, Intel posted $16.5 billion in quarterly revenue, up 21% from a year earlier, with non-GAAP earnings of $0.52 per share. Both revenue and earnings exceeded Intel's own guidance, making the market's reaction all the more striking. Ahead of the opening bell this morning, shares of Intel are down more than 20%.

That's almost definitely attributable to Intel's earnings report forecasting $15 billion to $16 billion for the fourth quarter, falling below the roughly $17 billion mark that analysts had expected.