SAN FRANCISCO, California: Intel shares surged sharply after the chipmaker reported unexpectedly strong demand for its processors, signaling a potential revival of central processing units (CPUs) in the artificial intelligence boom.

The stock jumped 24 percenton on Friday, hitting US$83 and surpassing its dot-com-era peak from 2000. The rally pushed Intel's market value above $416 billion, reflecting growing investor confidence in its turnaround strategy.

The surge was driven by strong first-quarter demand from companies offering AI services, particularly for server-grade processors. Intel executives said demand was so robust that the company sold chips it had previously written off, highlighting tight supply conditions.

"It was either a de-spec product or a legacy product we had shelved, and then we worked with customers. That helped a lot. I am not sure we have that benefit in the second quarter," said Intel CFO David Zinsner.

The broader chip sector also rallied, with AMD and Arm gaining more than 11 percent each. The gains reflect increasing belief that "inference", the process by which AI systems respond to user queries, could restore CPUs to a central role in computing after years of being overshadowed by graphics processing units (GPUs).

Even Nvidia, which has dominated the AI boom with its graphics chips, is moving into the space. The company recently unveiled a new central processor, marking a rare expansion into territory traditionally held by Intel and its rivals.

Analysts responded quickly to Intel's results, with at least 23 brokerages raising their price targets. HSBC cited strong demand for Intel's Xeon server processors, widely used in AI data centers, as a key driver.

Intel's median price target now stands at $75, up from $46.50 just a month ago.

The company's shares have risen more than 120 percent this year, building on an 84 percent gain in 2025, as CEO Lip-Bu Tan pushes ahead with a turnaround after years of setbacks.

However, the rally has also raised valuation concerns. Intel is now trading at roughly 90 times its forward earnings estimates, far higher than AMD at around 37 times and Nvidia at about 22 times.

Investors are also watching Intel's contract manufacturing ambitions closely. Earlier this week, the company secured Tesla as a customer for its next-generation 14A chipmaking process, tied to CEO Elon Musk's planned Terafab AI chip complex.

Analysts say this could be a key milestone in Intel's effort to compete with leading foundries.

"If the foundry business can start contributing in a meaningful way in 2027 - as expected - that should really show that the company's turnaround is complete," said Bob O'Donnell, president and chief analyst at TECHnalysis Research.

The results suggest a shifting dynamic in the AI hardware market, with CPUs regaining relevance alongside GPUs as demand for real-time AI applications continues to grow.