Shares of semiconductor giant Intel (INTC +2.64%) have had an incredible run in 2026. As of this writing, the stock is up about 85% year to date. This massive move higher comes as the market cheers Intel's recent decision to join Elon Musk's Terafab artificial intelligence (AI) chip project alongside SpaceX and Tesla. The project, tied to Musk's robotics and data center ambitions, leans on Intel's 18A process and offers a major vote of confidence in the company's turnaround plans.
Given this news and the company's scheduled first-quarter 2026 financial results after market close on Thursday, April 23, some investors may be wondering whether it is time to buy the stock. After all, if the company's upcoming earnings report confirms this newfound momentum, shares could soar even higher.
But there's reason to be cautious.
While the Terafab deal is undeniably exciting, Intel stock's valuation remains very difficult to justify. And the company faces significant risks.
Here is a closer look at why investors may want to stay on the sidelines ahead of Intel's earnings report.
Image source: Getty Images.
Supply constraints
To understand why Intel stock looks risky today, you have to look past the recent news cycle and focus on the company's actual guidance. When the chipmaker reported its fourth-quarter 2025 results in late January, management painted a picture of a business facing significant near-term headwinds.
Management guided for first-quarter revenue to be between $11.7 billion and $12.7 billion, representing a significant sequential decline from the company's $13.7 billion in fourth-quarter revenue.
The culprit?
Supply constraints. The company has been navigating industrywide supply shortages, and management said available supply would be at its lowest level in Q1 before improving in Q2 and beyond.
Even more concerning is the toll this is taking on profitability. Intel expects its first-quarter non-GAAP (adjusted) gross margin to compress to roughly 34.5% -- a notable step down from the 37.9% gross margin it posted in Q4.
Burning cash to build the future
Then there is the sheer cost of Intel's ambitions.
The financial burden of transforming its business into a modernized AI foundry is staggering. Its foundry business's operating loss in fiscal 2025 was approximately $10.3 billion. And the company's trailing-12-month free cash flow, which represents operating cash flow less capital expenditures, sits at negative $1.5 billion.
A business that once threw off significant cash is now consuming it rapidly as management races to build out its manufacturing capacity and ramp up its 18A node.
Of course, the bull case is that this heavy spending could eventually pay off when these investments translate into recurring foundry revenue. And the Terafab partnership certainly suggests the pipeline is building.
But converting these commitments into actual volume production and meaningful profits will take time, and there is immense execution risk along the way.
NASDAQ: INTC
Key Data Points
Priced for perfection
This brings us to the most glaring issue: valuation.
Following the tech stock's massive run-up this year, Intel commands a market capitalization of about $344 billion as of this writing. And the stock trades at an eye-watering 135 times forward earnings as of this writing.
At a valuation multiple like that, investors are no longer just paying for a successful turnaround. They are paying for near-flawless execution over the next decade. A valuation like this assumes that Intel will quickly resolve its supply constraints and successfully scale its foundry business to substantial profitability.
If the company's first-quarter earnings report on April 23 highlights any lingering supply issues or heavier-than-expected margin pressure, the market may not be very forgiving. When a stock is priced for perfection, even a minor disappointment can trigger a severe sell-off.
Intel is undeniably making bold moves, and its foundry pipeline is showing real promise. But a great business strategy does not automatically make a great stock. Given the company's massive capital requirements and stretched valuation, the risk-reward trade-off simply isn't attractive today.
I'm personally staying on the sidelines heading into earnings. While I could miss out if the stock pops, I just think the risks are too high relative to the valuation.
