Intel reported that its second-quarter revenues and profits were above expectations, as the chip giant saw significant growth in AI-related chip sales.

On a non-GAAP basis, Santa Clara, California-based Intel reported net income of $500 million, or 13 cents a share, compared with a profit of $1.1 billion, or 28 cents a share, a year earlier, on revenues of $12.9 billion, down 15% from a year ago for the second quarter ended July 1.

Analysts expect Intel to post a loss per share of 3 cents a share, while revenue was expected to be $12.14 billion. In after-hours trading, Intel’s stock price is up 6.43% at $36.80 a share.

“Our Q2 results exceeded the high end of our guidance as we continue to execute on our strategic priorities, including building momentum with our foundry business and delivering on our product and process roadmaps,” said Pat Gelsinger, Intel CEO, in a statement. “We are also well-positioned to capitalize on the significant growth across the AI continuum by championing an open ecosystem and silicon solutions that optimize performance, cost and security to democratize AI from cloud to enterprise, edge and client.”

Gelsinger returned to Intel in 2021 as CEO in an attempt to turn Intel around after several hard years of manufacturing delays. Intel also faces heavy competition from Advanced Micro Devices (AMD), which has designed more innovative chips than Intel and gained market share for years now. Gelsinger said Intel is on track to deliver $3 billion in cost savings in 2023.

David Zinsner, Intel CFO, said in a statement, “Strong execution, including progress towards our $3 billion in cost savings in 2023, contributed to the upside in the quarter. We remain focused on operational efficiencies and our Smart Capital strategy to support sustainable growth and financial discipline as we improve our margins and cash generation and drive shareholder value.”

Intel closed the quarter with 122,200 employees, down from 128,200 a year ago and 125,500 in the first quarter. For Q3 guidance, Intel said it expects to report non-GAAP earnings per share of 20 cents on revenue of $12.9 billion to $13.9 billion.

In an analyst call, Gelsinger said he was encouraged at the company’s progress with manufacturing investments.

“We continue to make good progress on our five [manufacturing] nodes in four years,” he said. “That culminates with 18A.”

He also said Intel has made gains with advanced packaging with its innovation on PowerVia “backside power,” which runs power through the back side of a chip instead of the front. Intel has a $20 million expansion under way in Arizona for a chip factory and it is filing papers for three more submissions related to the U.S. CHIPS Act, which will subsidize semiconductor manufacturing investments.

Gelsinger said he believes Intel has worked through inventory issues and he believes that Intel is regaining lost market share.

“Simply put, it was a very good quarter,” he said.

The Client Computing Group reported Q2 revenues of $6.78 billion, down from $7.68 billion a year ago, with a profit of $1.04 billion, up from a profit of $876 million a year ago. In this group, Intel is on track to launch its Meteor Lake PRQ in Q3 to bring AI to the PC at scale, and it will launch its code-named Arrow Lake and Lunar Lake processors in 2024.

Overall Client Computing Group revenue was lower on the contraction of the larger market and computer maker inventory reductions. Intel continues to make investments in graphics processing units (GPUs) and it has a healthy order volume for its Gaudi GPUs/accelerators.

“Every release gets better to cover more of the accelerator marketplace,” Gelsinger said.

The Datacenter and AI group Q2 record revenues of $4.0 billion, down from $4.69 billion a year ago, with an operating loss of $161 million, up from an operating loss of $80 million a year ago. In this group, Intel is launching its code-named Emerald Rapids product in Q4, and Sierra Forest in 1H24. Intel said revenue was down on overall market contraction and competitive pressure.

“We have an opportunity to perform better in the fourth quarter,” said Zinsner in a call with analysts.

Network and edge was $1.36 billion, down from $2.21 billion a year ago, with a loss of $187 million, compared with a profit of $294 million a year ago. Intel said the sector was lower on edge and telco demand softness and elevated network inventories.

Mobileye was $454 million, down from $460 million a year ago, with a profit of $129 million, down from $190 million a year ago.

Intel foundry services was $232 million, up from $57 million a year ago, with an operating loss of $143 million, up from a loss of $134 million a year ago.