One of the best performers in the technology sector this year was Intel (INTC +2.01%), with its stock up roughly 80% in 2025. Extreme pessimism at the start of the year gave way to hope when new CEO Lip-Bu Tan was appointed to the role in March. Then hope turned to enthusiasm when the U.S. government, Softbank, and Nvidia all invested in the company in the third quarter.
Skeptics may say Intel is due for a pullback in 2026, but investors should consider that Intel's market capitalization is still far below that of other AI leaders, at just $173 billion today.
That still leaves room for further upside if Intel can execute and regain its technology leadership. And while many analysts are skeptical this will happen, Intel may very well change the narrative in a big way next year.
NASDAQ: INTC
Key Data Points
Profits are nearly certain to inflect higher
Many don't really understand Intel's current financials, which is understandable. Current profits appear nonexistent; last quarter's adjusted (non-GAAP) EPS was a meager $0.23, likely not enough to justify the current stock price of $36.50.
Yet it seems nearly inevitable that Intel's profits will increase throughout 2026. The most direct way this will happen is by relocating more production from Taiwan Semiconductor Manufacturing (TSM +1.50%) to Intel's own manufacturing fabs.
Throughout former CEO Pat Gelsinger's turnaround plan, Intel had to reinvest to build its Intel 3 fab in Ireland and its 18A fab in Chandler, Arizona. During that period, Intel still produced older nodes in-house, but outsourced basically all of its leading-edge chipmaking to TSMC as its new fabs were built. As a virtual monopoly, TSMC achieved a very high gross margin of 59.5% last quarter. Meanwhile, Intel's foundry is yielding large operating losses, to the tune of $2.3 billion last quarter alone.
But Intel foundry's losses are entirely due to Intel having invested heavily in expensive leading-edge fabs, while having very little product running through those fabs as of yet. However, as Intel moves production back to both Intel 3, which began high-volume manufacturing in late 2024, and especially 18A, which just began high-volume manufacturing this quarter, those underutilization losses will not only reverse but should eventually turn into profits by 2027.
So there will be a double-positive effect of Intel beginning to utilize the fabs it has already built, while also not having to pay TSMC's huge margins.
While yields on the 18A process are currently lower than normal, according to Intel management, it's early in that node's ramp. Management remains confident yields will improve throughout next year, which should lead to steady margin increases throughout 2026.
Technology leadership could add even more profitability
Speaking of 18A, it is still the node by which Intel believes it will meet or exceed TSMC's technology in the industry. Now, there is some debate about this, with some industry participants arguing that TSMC's 2nm remains superior.
Yet while both Intel and TSMC will be using gate-all-around transistors for the first time with their 18A and 2nm nodes, Intel will be bringing at least one technology to market ahead of TSMC: backside power.
Backside power moves the power delivery wires of a semiconductor from the front of the chip to the back part of the chip. This leaves more room on the front for more transistors, which leads to better performance and efficiency.
In addition, while Intel has been close-lipped about the tooling for its 18A node, there is also the possibility that Intel may utilize high-NA extreme ultraviolet lithography (HNA) tools for 18A.
HNA can "write" chip patterns in a thickness of just 8nm, more precisely than the 13nm light beams of low-NA EUV. If Intel implements high-NA for the 18A node, it can eliminate several processing steps that would be required by double or triple-patterning designs with LNA tools, thereby saving on other equipment lines and fab space. At a technology conference back in February, Intel noted that a high-NA machine can do the same work with a single-digit number of process steps that it took three low-NA machines and 40 steps to accomplish.
Now, for the record, Intel has only stated that it will integrate HNA production into its upcoming 14A node. However, management has never explicitly ruled out the possibility of inserting the technology into 18A. Meanwhile, Intel has publicly disclosed it has already purchased at least three high-NA machines, and potentially more. Moreover, Intel just revealed two weeks ago it had completed "acceptance testing" for the production-grade HNA system, meaning it is manufacturing-ready. With Intel having first received HNA tools in late 2023 and the tool seemingly ready for production, it would be odd if the company doesn't use these next-gen tools until 2028's 14A.
Image source: Getty Images.
External customer announcements?
Finally, in addition to improving its technology and margins for its own chips, Intel is also attempting to become a rival foundry to TSMC and break its monopoly. In fact, Intel has stated it may not even develop its next 14A node if it doesn't secure a large external customer -- although executives remain confident that this will happen.
If Intel does land an external customer for 14A, which is scheduled to enter risk production in 2027 and high-volume production in 2028, that customer win may very well be announced in 2026.
Already over the past month, rumors have circulated that Apple may utilize the 18AP node variant, a more refined version of 18A, for its lower-end M-series processors. Meanwhile, Moor Insights & Strategy analyst Patrick Moorhead recently wrote, "Intel customers I've talked with who have seen this one say that 14A is the real deal." And GF Securities in Hong Kong recently reported Nvidia and even Intel rival Advanced Micro Devices are considering the 14A node.
If these rumors are already circulating in 2025, there will likely be a lot more activity surrounding external customer announcements in 2026.
2026 could see the rally continue
2025 was the first stage of Intel's turnaround. The company returned to meager profitability, implemented its new 18A process, and reduced the company's bloated expense base. It attracted investment from the U.S. government and others, and new CEO Lip-Bu Tan is beginning to make his presence felt.
Yet 2026 could see even more tangible more breakthroughs across profitability, technology, and landing external customers. In other words, it will be another fascinating year for the most consequential U.S. chipmaker -- with potentially much more upside for the stock.
