SAN FRANCISCO (MarketWatch) — Intel Corp. shares jumped more than 7% Wednesday, a day after the company surpassed Wall Street’s projections, triggering a debate on the true state of the personal computer market.

Intel’s INTC, +1.15% stock rose 7.8% to close at $21.41, leading the broader tech sector higher after the world’s biggest chip maker also put out an outlook that exceeded expectations. Intel was the top gainer on the Dow Jones Industrial Average DJIA, +1.19% which added 187 points..

“Well, we certainly weren’t expecting this,” Needham analyst Quinn Bolton said in a note. “Intel reported first-quarter results and issued a second-quarter guidance so substantially above our and consensus expectations that third party PC market researchers will likely be left scratching their heads.”

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Indeed, Intel’s report was stunning for a key reason: The company reported a jump in PC chip sales at a time when industry reports pointed to a slumping PC market.

“PC slowdown? What PC slowdown?” Bernstein Research analyst Stacy Rasgon quipped in a note. “Intel’s first-quarter report crushed estimates and their own guidance. ... Management guided well above consensus expectation, and continues to expect 2011 PC unit growth in the ‘low double digits.’”

Nomura Equity Research analyst Romit Shah late Tuesday called Intel’s results “a blowout first quarter” that was “almost hard to believe.”

J.P. Morgan analyst Christopher Danely upgraded Intel to overweight from neutral, citing “upside to consensus as inventory has normalized at both Intel and the channel.”

FBR Capital’s Craig Berger also raised his rating to outperform from market perform, saying “sentiment is overly bearish.”

“We are biting the bullet and upgrading Intel to outperform from market perform following much stronger than expected results and guidance Tuesday after market close,” Berger said in a note.

Semiconductor companies are typically viewed as indicators of the tech market as chip companies must build products ahead of any uptick in demand for customer goods.

Intel’s results quickly sent a strong signal that the PC and broader tech sector may not be as weak as some analysts had thought.

Shares of other chip makers, including Intel rival Advanced Micro Devices AMD, +0.26% , were up sharply, and so were the stocks PC makers, led by Hewlett-Packard HPQ, +0.37% and Dell Inc. DELL, -1.03%

Intel announcement that it projects higher capital spending for 2011 also triggered a spike in shares of semiconductor capital equipment makers on Wednesday. Shares of Applied Materials Inc. AMAT, -0.33% and Novellus Systems NVLS were each up more than 4%, while KLA-Tencor KLAC, +0.21% gained nearly 7%.

The Philadelphia Semiconductor Index SOX, +0.07% rose 4.3%, outpacing the Nasdaq Composite Index COMP, +0.74% which gained 2.1%.

TI's $6.5 billion National Semi buy

Intel late Tuesday reported a 29% jump in profit for the first quarter, beating Wall Street’s expectations on strong double-digit gains in revenue that was reflected across the company’s business segments.

Revenue jumped 25% to $12.85 billion from $10.3 billion for the same period last year. See full Intel earnings coverage from MarketWatch

Intel said revenue from its data- center group, which covers server chips, rose 32% year over year, highlighting the strong demand in the corporate technology market. Revenue from its personal-client group, which covers PC chips, rose 17%.

The company’s Atom chip business, which is aimed at the mobile computing market, posted a 4% gain in revenue.