Intel's Crossroads: AI Ambitions Clash with Foundry Challenges as Q2 Earnings Loom

Intel Corporation (NASDAQ: INTC) stands at a critical juncture, with its future in AI and chip manufacturing drawing close scrutiny from analysts and investors. As the company prepares to release its second-quarter results after market close on Thursday, July 24, the focus is sharply on its turnaround strategy amidst intense competition and a challenging market.

Industry observers, including Loop Capital, suggest that Intel's advanced chipmaking capabilities may not match those of Taiwan Semiconductor Manufacturing Company (TSMC). This has led to the view that TSMC could be an essential manufacturing partner for Intel to enhance its competitiveness against rivals like AMD, Nvidia, and Arm. However, a potential Catch-22 exists: if Intel's own foundry business cannot attract sufficient volume from its internal product lines, covering its substantial fixed costs may become difficult. Some analysts believe that shifting away from in-house foundry operations might be more beneficial for Intel's stock performance.

Intel designs and sells computing hardware, semiconductor products, and AI solutions. While acknowledging its potential, some analysts recommend caution, suggesting other AI stocks might offer greater upside with less risk, especially given the ongoing trend of onshoring manufacturing and the implications of tariffs.

The company's Q2 earnings report is highly anticipated, following a mixed first quarter where revenue reached $12.7 billion but a net loss of $800 million was reported. Analysts are bracing for another difficult quarter, with Intel's own guidance for Q2 revenue set between $11.2 billion and $12.4 billion, below Wall Street estimates. Adjusted earnings per share are expected to be near breakeven, missing the anticipated $0.06. These conservative projections stem from broader macroeconomic uncertainties and the potential impact of tariffs, which Intel's CFO has indicated could increase recession risks.

Intel's client computing group, encompassing PC chips, experienced a revenue decrease of more than 5% in Q1, signaling soft demand. The foundry business, crucial to Intel's shift towards manufacturing for external clients, recorded $4.7 billion in Q1 revenue but continues to operate at a loss, raising questions about its scalability. New CEO Lip-Bu Tan, who assumed leadership in early 2025, has acknowledged that there are "no quick fixes," emphasizing the need for cultural changes and cost reductions.

Intel's delay in AI development has further impacted its competitive standing, especially against Nvidia, which has thrived in the AI space. Trade tensions, particularly potential high tariffs on US chips exported to China, Intel's largest market, also present a significant headwind. Q1 adjusted gross margin declined to 36.5% from 39.2% in the prior quarter, reflecting a shift towards lower-margin client products. Consensus estimates for Q2 indicate a revenue decline of approximately 7% to $11.9 billion, with EPS at $0.01.

Taiwan's growing dominance in advanced chipmaking, with TSMC's market valuation exceeding $1.2 trillion by July 2025, further complicates Intel's position. Intel currently outsources more than 25% of its own chip production, including components for its flagship Lunar Lake and Meteor Lake chips, to TSMC. This reliance highlights the "Catch-22" situation: to produce competitive cutting-edge chips, Intel may need to outsource to its rival, which undermines its own foundry business that requires high volumes to be profitable.

The housing market will also be in focus today. New-home sales data for June is expected to show an increase to 650,000 units from May's 623,000, suggesting growing housing demand. Additionally, weekly mortgage rate data from Freddie Mac will be released. The average 30-year fixed mortgage rate stood at 6.75% as of July 17, having risen for two consecutive weeks, adding to the challenges faced by homebuyers.

Investors are seeking updates on Intel's foundry customer acquisitions and AI progress in the Q2 call. While $7.86 billion in CHIPS Act funding provides support, successfully scaling advanced nodes like 18A by late 2025 is uncertain. With the stock reflecting a bearish outlook, any positive signs in foundry development, AI positioning, or cost control could boost investor confidence, but disappointing results could deepen skepticism.