Core Viewpoint - The artificial intelligence (AI) sector continues to show potential for growth despite concerns about a bubble and funding challenges, with three leading companies expected to have significant upside in 2026 [1][2]. Group 1: Microsoft - Microsoft has seen a 15% increase year-to-date in 2025 but has faced recent pullbacks due to investor concerns over OpenAI's competitive position and funding capabilities [3][4]. - Microsoft holds a 27% stake in OpenAI and has committed $250 billion in cloud computing, which could be beneficial if OpenAI maintains its market position [3][4]. - Analyst Keith Weiss from Morgan Stanley upgraded Microsoft's stock with a price target of $650, indicating a potential 35% upside, citing stronger-than-expected demand for Azure AI [7]. - The introduction of Microsoft's next-generation AI chip, Braga, is anticipated in 2026, which could further enhance its competitive edge [8]. Group 2: Alphabet - Alphabet has experienced a 62% increase in 2025 and remains one of the cheaper stocks among its peers, suggesting room for further appreciation [9]. - Concerns about AI chatbots disrupting Alphabet's Search business have not materialized, with paid clicks showing growth of 2%, 4%, and 7% in the first three quarters of 2025 [10]. - The release of the Gemini 3 model has positioned Alphabet as a leader in AI, with significant interest in its Tensor Processing Units (TPUs) from other companies [12][13]. - Google Cloud has reached a $60 billion revenue run-rate with a nearly $5 billion operating profit run-rate, growing 34% in Q3, indicating its potential as a major profit center [14]. Group 3: Intel - Intel has seen an 83.6% increase in 2025, recovering from a distressed price point, but its market cap remains lower than other AI leaders [16]. - The new CEO, Lip-Bu Tan, is expected to make a significant impact as Intel begins high-volume manufacturing of its 18A node, which is crucial for regaining technology leadership [17]. - Success with the 18A node could lead to external customer wins, with major companies showing interest in Intel's upcoming 14A node technology [18][19]. - If Intel can demonstrate advancements in process technology and secure significant customer commitments, there remains considerable upside potential for its stock [20].

Core Insights - Intel's Q3 earnings report indicates a revenue of $13.7 billion, reflecting a 3% year-over-year increase, with a diluted EPS of $0.90 and a gross margin of 38.2% [6] - The company anticipates that yields for its 18A manufacturing process will improve to industry-acceptable levels by the end of next year, with better performance and yield expected from the next-generation 14A node [1][4] - Analysts have noted that demand for Intel's CPUs is exceeding supply, a trend that may persist into 2026, leading to a raised Q4 outlook by 3% [4] Financial Performance - Revenue for Q3 was $13.7 billion, up 3% YoY, with a net income of $4.1 billion compared to a net loss of $16.6 billion in Q3 2024 [6] - The guidance for Q4 revenue is projected between $12.8 billion and $13.8 billion, with a gross margin expected at 34.5% [6] - The company’s Q4 guidance includes a gross margin target of 36.5%, but analysts suggest that a full EPS recovery requires a gross margin above 45% [9] Analyst Insights - Bank of America has lowered its pro forma EPS estimates for 2026 by 4% to $0.51, citing slow internal adoption of the 18A node and competitive pressures in the foundry market [7] - The stock is considered overvalued, trading at a 50 multiple price-to-earnings estimate for 2027, with a reiterated underperform rating and a price target of $34 [8] - Key challenges identified include gross margin pressure, tough competition in both products and foundry, and a lack of large external customer wafer orders [9]

Core Insights - Intel is undergoing a strategic shift under CEO Lip-Bu Tan to become more "lean, fast and agile," which includes significant workforce reductions aimed at lowering headcount to 75,000 by year-end [3] - The company is adopting a more conservative business approach, focusing on financial discipline and avoiding overextension in its operations [4] Business Strategy - Intel previously expanded its manufacturing capacity under former CEO Pat Gelsinger, but this strategy led to billions in losses from 2022-2024 due to overestimated customer demand [4] - The company is currently ramping up its 18A process with plans for high-volume production by the end of the year, while the future of the 14A node will depend on customer demand and investment costs, with clarity expected by 2026 [6][7] Customer Engagement - Intel intends to engage with customers to gauge demand before expanding manufacturing capacity for the next-generation 14A chipmaking process [7] - There is a possibility of contracting 14A production to third-party foundries like TSMC, but the likelihood of this occurring is considered low [7] Government Support - The U.S. government's equity stake related to the CHIPS and Science Act grants has provided Intel with more operational flexibility, removing previous constraints [7]