Tech giant Intel (INTC.O) has defied expectations by posting a surprising quarterly profit, signaling a potential turnaround in the PC market. The slump in PC sales that plagued the industry over the past year is beginning to ease, and as a result, inventories have started to diminish. Canalys data shows that PC shipments only fell by 11.5% in the June quarter, a significant improvement compared to the steep 30% declines witnessed in the previous two quarters.

The positive trend in the PC market has buoyed Intel’s outlook, leading the company to forecast higher profits for the third quarter. Although Intel’s profit margins had previously experienced a significant decline from all-time highs, the company is optimistic about a rebound in the second half of the year.

Edward Snyder, an analyst at Charter Equity Research, attributes Intel’s success to its desktop sales, which have rebounded impressively from a near-record low in the previous quarter. This resurgence in desktop sales has substantially boosted Intel’s market value, adding nearly $9 billion, a much-needed boost for the company in recent years when it fell behind rivals like Nvidia (NVDA.O), Advanced Micro Devices (AMD.O), and Broadcom (AVGO.O).

Intel’s foundry business, responsible for manufacturing chips for other companies, reported revenue of $232 million, a significant increase from the $57 million recorded a year ago. The company’s focus on advanced packaging and high-performance computing, particularly for artificial intelligence (AI), has garnered increased interest in the industry, paving the way for more business opportunities in this area.

Collaborating with Swedish telecommunications equipment maker Ericsson (ERICb.ST), Intel is set to produce a chip using its most advanced manufacturing technology to meet the growing demands of AI computing in the cloud. While Intel’s data center and AI sales experienced a 15% decline to $4 billion from the year-ago quarter, the company remains optimistic about its AI chips’ future potential, expecting at least $1 billion in sales through 2024.

Despite exceeding Wall Street estimates, Intel faces challenges in the server chip market, as cloud majors Microsoft (MSFT.O) and Alphabet are increasing spending on data centers, with a significant portion directed toward Nvidia (NVDA.O), a prominent player in AI chip production.

However, Intel’s overall outlook appears promising, with adjusted earnings per share projected at 20 cents in the current quarter, surpassing the expected 16 cents. The company forecasts adjusted revenue between $12.9 billion and $13.9 billion, hinting at a 12.6% year-over-year decline in Intel’s business but exceeding estimates. Additionally, Intel expects an adjusted gross margin of 43% in the third quarter, surpassing estimates of 40.6%.

Intel shares have seen a 30% rise this year, reflecting investor optimism in anticipation of an industry recovery. While challenges persist, the company’s recent performance and strategic initiatives signal a potential return to growth, reaffirming its position as a significant player in the ever-evolving tech landscape. As the industry continues to evolve, all eyes are on Intel to see how it navigates these transformative times and capitalizes on new opportunities.