TL;DR
· Intel has pulled back about 36% from its June high, approaching JPMorgan's $85 price target, which became the direct trigger for this rating upgrade.
· Since Lip-Bu Tan took office, the core computing business, manufacturing processes, and strategic execution have all improved, but market share may still continue to decline.
· Data centers have become an important source of profit, and CPU demand brought by agentic AI is the key basis for JPMorgan's optimism about earnings growth.
· Progress in manufacturing technology has yet to translate into external orders, and commercial validation of Intel's foundry business remains at an early stage.
· The custom chip business offers new revenue opportunities, but the company's continued investment may still bring financing and equity dilution pressure.
· JPMorgan expects Intel's earnings to continue growing, but maintains a Neutral rating, waiting for more evidence from the product roadmap, customer orders, and cash flow.
· JPMorgan's nearly four-year underweight call on Intel is now reaching a turning point.
In an October 18 report, JPMorgan upgraded Intel from Underweight to Neutral, with a December 2027 price target of $85. Based on the October 16 closing price of $89.85 listed in the report, that target is still about 5% lower.
This gap shows that the core of the upgrade is that after the share price decline, risk and reward have become more balanced. Intel's operational execution is improving, but there is still a considerable way to go before completing a transformation that will take years to deliver.
The decline has absorbed some risk, but valuation still requires earnings delivery
JPMorgan noted that Intel's share price has retraced about 36% from its June high, exceeding the roughly 20% to 25% decline of peers over the same period. Some of the factors that previously supported its cautious stance are gradually being reflected in the share price.
Competitive pressure over the past few years has been very clear. Since JPMorgan downgraded the stock in November 2022, Intel's revenue share in the server x86 CPU market has fallen from 77% to 53%, and its PC CPU share has fallen from 81% to 68%. The bank expects share may continue to decline in the coming quarters, especially in the server business.
However, the recent adjustment has also compressed Intel's previous valuation premium relative to peers. Based on JPMorgan's projected 2028 adjusted earnings per share of $3.60, Intel's current price-to-earnings ratio is about 25 times, already close to the 24 times peer valuation level used by the bank.
JPMorgan's $85 price target is derived precisely by multiplying 2028 expected earnings per share by about 24 times. This means that even after a significant share price pullback, the current valuation is still based on continued future earnings recovery.
Equity dilution was also an important pressure previously. According to the report, Intel's shares outstanding have increased from about 4.4 billion a year ago to about 5.1 billion. JPMorgan believes that the dilution impact from the previous round of financing has basically entered the valuation and earnings calculation base, and the risk of further large-scale dilution is also gradually being priced in by the market.
But risk being priced in does not mean the financing need has disappeared.
Execution is improving, and data centers have become key to profit recovery
More important than the valuation change is that JPMorgan is gaining confidence in operational execution under Lip-Bu Tan.
In the core computing business, the Data Center and AI business unit (DCAI) has become Intel's largest source of profit. According to the report, in the second quarter of 2026, the unit's operating profit reached $2.5 billion, surpassing the client business for the first time.
JPMorgan noted that supply of Granite Rapids server processors is tight, and long-term agreements with customers including Google extend demand visibility into 2027. This provides support for the company's subsequent revenue and profit.
Changes in AI demand are also an important part of the bank's judgment. JPMorgan believes that agentic AI workloads have high CPU demand. Under this judgment, the boost to Intel from AI infrastructure investment is expected to be reflected through the server processor business.
Despite recent market concerns about the sustainability of AI infrastructure spending, JPMorgan still expects that growth in agentic AI demand and tight supply of advanced chips will drive continued upward revisions to Intel's earnings forecasts in the upcoming earnings season and in 2027. The bank's 2028 earnings per share forecast is about 15% above market consensus.
The client business presents another set of tensions. The report says AI PCs already account for about two-thirds of Intel's client product mix, and favorable average selling prices and product mix have supported business performance. But rising memory prices are pushing up total system bill of materials costs, which may suppress PC sales from the second half of 2026 to 2027.
Therefore, whether product mix improvement can offset end-demand pressure remains an important observation point for the client business.
Manufacturing progress boosts confidence, but foundry still lacks scale validation
The manufacturing business is one of the areas where JPMorgan's assessment has improved most noticeably.
The report says 18A-P has entered risk production, 14A is planned for mass production in 2028, with risk production targeted for the second half of 2027. JPMorgan also noted that yields, process and design rule compatibility, and advanced packaging capabilities have all improved significantly.
Among them, the EMIB-T advanced packaging backlog is building a foundation for the 2027 capacity ramp. For JPMorgan, these changes have strengthened its confidence that Intel's manufacturing technology base is stabilizing.
But there is still a clear distance between technological progress and the formation of scaled external revenue.
According to the report, Intel's external foundry business in the first half of 2026 had an annualized revenue of only close to $1 billion. JPMorgan juxtaposed this with TSMC's annualized total revenue of about $150 billion in the same period to show the scale gap between the two. The business definitions are not entirely consistent, but the still-small scale of Intel's external foundry revenue is an important reason for the bank's cautious stance.
The key next step is whether Intel can secure major external customers for advanced processes and translate technological progress into sustained orders. JPMorgan believes that the landing of named core customers will help validate the economics of the foundry business and the return prospects of continued capital investment.
The custom chip business offers another growth path. The report says Intel's ASIC services business is approaching $2 billion in annualized revenue, about three times the year-earlier level, and is expected to move further toward $4 billion.
ASIC stands for application-specific integrated circuit, which can be designed for specific tasks. As large cloud providers increase investment in custom chips, JPMorgan believes Intel can combine its own chip intellectual property, system-on-chip design capabilities, and manufacturing capabilities to win more business opportunities.
However, the revenue outlook still needs to be realized gradually through design wins and customer projects. The bank lists new large cloud provider or AI lab customers as important subsequent upside catalysts.
After profit recovery, cash flow remains a hurdle
JPMorgan's financial forecasts present a path of sustained earnings growth: Intel's revenue is expected to rise from about $63.3 billion in 2026 to $77.7 billion in 2027, and reach $94.3 billion in 2028; adjusted earnings per share are expected to be $1.58, $2.44, and $3.60, respectively.
But there is still a time lag between profit recovery and positive cash flow.
According to the report's forecasts, Intel's 2026 operating cash flow will be about $19 billion, capital expenditure about $19.2 billion, and free cash flow will still be slightly negative. By 2027, operating cash flow is expected to increase to about $22.5 billion, but capital expenditure will rise further to $26 billion, and the free cash flow gap will instead widen to about $3.5 billion.
Only in 2028 does JPMorgan expect the company's free cash flow to turn positive, reaching about $8.2 billion.
This explains why operational improvement is not yet enough to prompt the bank to give a more positive rating. Manufacturing capacity building continues to consume cash, and the report cites management as saying that 2027 free cash flow will still be "more challenging," and the company may need to return to the capital markets for financing again.
If new financing involves equity issuance, existing shareholders may still face further dilution.
JPMorgan is also waiting for several key validations: whether the data center CPU roadmap can continue to deliver, whether it can stabilize share in the face of AMD competition, whether AI chips and inference products can win more orders, and whether external foundry customers can generate substantive revenue. Strengthening data center networking capabilities is also a direction the bank is watching.
Intel has already provided more evidence of improved execution, and the share price pullback has also reduced some of the previous valuation pressure. But moving further from Neutral to optimistic still requires customers, share, and cash flow to jointly prove that this multi-year transformation is generating sustainable returns.
