Intel's Data Center Surge Could Drive 2027 Outperformance

Intel stock has been on a tear, up about 170% year-to-date as of mid-October 2026, far outpacing the S&P 500's 13% gain. The driving force behind this rally is Intel's data center and AI segment, which saw revenue surge 59% year over year to roughly $6.3 billion in the second quarter. That helped Intel post its strongest revenue growth in more than 15 years.

The demand is coming from AI inference workloads, such as agents and other applications that require powerful server processors. Intel, with its expertise in CPUs, is well-positioned to capture this trend. Management expects industry-wide server processor unit shipments to grow by strong double digits through 2027, with momentum carrying into 2028.

Intel is also making strides on the product front. It recently launched its first server chip, Xeon 6+, built on the new 18A manufacturing process. Notably, 18A production is running ahead of the company's internal targets, which is a positive sign for Intel's manufacturing roadmap.

On valuation, the stock trades at about 47 times next year's earnings estimates, which may seem expensive. However, Intel's earnings are recovering from depressed levels and are expected to grow at an annualized rate of 69% over the next several years. That gives the stock a PEG ratio of 0.8, which is generally considered attractive.

Investors will get an update when Intel reports third-quarter results on October 29. If the data center business continues to grow at this pace, the stock could outperform in 2027.

The data center segment is critical for Intel's future. It's not just about selling more chips; it's about selling higher-value chips for AI and cloud workloads. The 59% growth in this segment shows Intel is capitalizing on the AI boom, even as competition from AMD and others intensifies.

The expected double-digit growth in server processor shipments through 2027 suggests a sustained demand environment. If Intel can maintain its market share and pricing power, this could lead to significant revenue and earnings growth. The new Xeon 6+ chip on the 18A process is a key part of this, as it demonstrates Intel's ability to innovate and manufacture at scale.

The valuation picture is also compelling. While 47 times earnings might look high, the expected earnings growth of 69% annualized brings the PEG ratio down to 0.8. This suggests that investors are getting a good deal relative to the growth prospects. If Intel delivers on expectations, the stock could continue to outperform.

However, there are risks. Intel faces tough competition from AMD and ARM-based processors, and the semiconductor industry is cyclical. Execution on the 18A roadmap is crucial. Any hiccups could derail the growth story. But for now, the momentum is strong, and the upcoming earnings report on October 29 will be a key catalyst.