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Intel (NASDAQ:INTC) will post its third-quarter results after the bell on Thursday, Oct. 29. If the past year is any guide, revenue could be the least surprising number in the release.
Intel's revenue has topped its own forecast in seven straight quarters. And the latest one wasn't close: Second-quarter revenue of $16.1 billion was $1.8 billion over the midpoint of management's guidance. Investors have noticed. Shares trade near $114 as of this writing, about triple where they began 2026.
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But a business can sell more chips than it planned and still struggle to profit from them. I think the number that matters most this month is Intel's gross margin (the percentage of sales Intel keeps after paying to build its products). And its climb has slowed sharply.
For the third quarter, management forecast revenue of $15.8 billion to $16.8 billion. The $16.3 billion midpoint works out to about 19% growth year over year, a drop from the second quarter's 25% rate. Yet that's strong for a business whose revenue was flat in 2025.
Hitting the range could depend more on Intel's factories than on its customers. In its second-quarter filing, Intel said demand for both its PC and server chips exceeded the supply it had available, and it expects industrywide shortages of substrates, memory, and other parts to run into next year. That means revenue will probably track how many chips Intel's plants can make.
Gross margin is different. It reflects yields at those plants, the early costs of ramping Intel 18A (its latest manufacturing process), what Intel pays for memory and other inputs, and the prices it can charge.
Intel's non-GAAP (adjusted) gross margin was 37.9% in the fourth quarter of 2025. It jumped to 41% in the first quarter of 2026, then inched up again in the second quarter, to 41.8%. For the third quarter, management forecast around 42% (41% on a GAAP basis). Each rise has been smaller than the last -- a gain of 3.1 percentage points, then 0.8 points, then a guided 0.2 points. Plus, 42% would be only around 2 points over the 40% Intel reported for the third quarter of 2025.
Intel's margin beats have been shrinking, too. The first quarter's 41% topped Intel's 34.5% guidance by around 6.5 points, helped partly by sales of previously reserved inventory.
The second quarter's 41.8% beat the 39% guidance by around 2.8 points, helped by higher factory yields.
"We were very pleased with Q1 gross margins and we will continue to push for gross margin expansion. It is my top priority," CFO David Zinsner said in April, in his comments on Intel's first-quarter results.
In those same comments, though, Zinsner said Intel 18A was still early in its ramp and that climbing input costs, especially memory, were "growing headwinds in the second half."
At the guided revenue midpoint, one percentage point of gross margin is worth around $160 million of gross profit a quarter. That's about 6% of the $2.8 billion in adjusted operating income Intel earned in the second quarter.
And the share price leaves little room for a margin that stalls. At around $114, Intel has a price-to-earnings ratio of about 55 using expected 2027 earnings. Measured against its adjusted earnings over the last four quarters, the ratio is above 100. Investors are already paying for profits that haven't arrived yet.
To be fair, the margin might keep rising. Intel said in July it had lowered the cost of its main Panther Lake chip made on 18A by around 50% so far in 2026, with another 20% drop expected by year-end.
But spending is climbing, too. Intel lifted its 2026 capital spending outlook to over $20 billion and expects 2027 spending to be much higher. New factories and equipment carry depreciation costs that might hurt gross margin when they come online.
Another revenue beat on Oct. 29 might be welcome, but it likely won't tell investors much they don't already know. A gross margin comfortably above 42%, plus a fourth-quarter forecast that keeps it rising, would arguably show the turnaround reaching profits.
A margin that just meets the 42% forecast, though, might not cut it for a stock priced for a comeback. At a price-to-earnings ratio around 55, I think Intel needs that number climbing faster than its own forecast suggests.
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Prediction: The Number That Will Move Intel Stock in October Isn't Revenue was originally published by The Motley Fool
