Prediction: Intel Stock's Best Days Are Behind It -- and Here's the Chip Stock to Buy Instead

Key Points

If there were any doubts about Intel's ability to turn its business around, Intel's latest results arguably put those to rest.

The stock is up more than 300% in just 12 months.

Intel's market capitalization of more than $425 billion is difficult to justify.

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Intel (NASDAQ: INTC) stock's gains over the past year are nothing short of astounding. Shares have skyrocketed, rising more than 300%. That's more than a fourfold increase.

While the stock certainly deserves a big gain over this period, I think a good case can be made for why this increase may have gone too far. Indeed, I wouldn't be surprised if Intel shares underperformed over the next five years, or possibly even went nowhere.

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Before you jump to the conclusion that I'm being too bearish, note that even the assumption that shares go nowhere over the next five years assumes the stock holds its astronomical gains over the past 12 months. While that would leave the stock with a 0% gain over the next five years, it would still amount to more than a 300% gain over the total six-year period, including last year's gain -- not bad at all.

But why, exactly, am I avoiding Intel stock, and what chip stock would I consider buying instead?

Intel's valuation problem

Understanding why Intel's stock has soared requires some background: The company has been undergoing a multi-year turnaround. One year ago, it wasn't clear whether the company would gain sufficient traction to achieve the scale needed to return to meaningful profits; Intel's first-quarter results in 2025 showed revenue unchanged from the first quarter of 2024, and management cited elevated macroeconomic uncertainty.

Fast forward to the first quarter of 2026, and Intel has returned to meaningful growth -- even in a supply constrained environment. Revenue grew 7% year over year, and non-GAAP (adjusted) earnings per share more than doubled, rising to $0.29.

Behind this momentum, the company's data center and artificial intelligence (AI) segment saw revenue rise 22% year over year to $5.1 billion, as it is finally finding ways to tap into AI infrastructure spending.

And the company is seeing its core CPU business get caught up in the AI boom.

"Even as we improve factory output, demand continues to run ahead of supply for all our businesses, especially for Xeon server CPUs where we expect sustained momentum this year and next," said CEO Lip-Bu Tan during the company'searnings call

This turnaround is exciting. But shares have arguably risen too high, too fast. The stock now boasts an incredible market capitalization of $427 billion, and trades at about 73 times the annualized run rate of its first-quarter adjusted earnings per share.

With a valuation like this, I think an average annual return for the stock any higher than a mid-single-digit rate would be a best-case scenario, as the market has already priced in not just a full turnaround but also significant top- and bottom-line growth for years to come. However, in a bear-case scenario in which the AI boom enters a consolidation period at some point over the next few years, I could also see the stock not appreciating at all over the next five years.

The chip stock I'd buy instead

While I think Intel stock is overvalued, I don't think all chip stocks are overvalued. One I'd consider today is Broadcom (NASDAQ: AVGO).

Broadcom isn't cheap either. At about $418 per share as of this writing, the semiconductor and infrastructure software company commands a market capitalization of about $2 trillion. But unlike Intel, Broadcom's underlying business momentum actually justifies this valuation.

In the fiscal first quarter of 2026, Broadcom's revenue rose 29% year over year to $19.3 billion as AI semiconductor revenue surged 106% to $8.4 billion -- and management expects AI semiconductor revenue to climb to $10.7 billion in fiscal Q2.

Management's expectations for total revenue for fiscal Q2? 47% year-over-year growth -- a significant acceleration.

Even more, the company's relationships with the biggest customers in its custom accelerator business are extremely "sticky". In its first-quarterearnings call Broadcom CEO Hock Tan described them as "deep, strategic, and multiyear."

Working so closely with its customers, Broadcom has significant visibility into demand, and that's why the company can boldly predict AI revenue from chips "in excess of $100 billion in 2027" -- a game-changing forecast that helps justify the stock's high valuation.

There are risks, of course. Broadcom depends heavily on a small number of large AI customers, and any slowdown in AI infrastructure spending could weigh on the stock.

All of this to say, it's important for investors to attempt to align a business's underlying fundamentals with its valuation and determine whether a stock's valuation is actually justified or not. With Intel, the valuation requires a huge leap of faith. Growth will have to accelerate even more, and margins will have to expand significantly. For Broadcom, however, we arguably just need the company's current momentum and its existing multiyear custom silicon projects to continue.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom and Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.