With Intel, AMD, Nvidia, and More Rising Sharply Last Week, Have Chip Stocks Become Overvalued?

Last week was a huge week for chip stocks. Earnings reports from Intel (NASDAQ: INTC) and Texas Instruments (NASDAQ: TXN) demonstrated that the AI boom is alive and well, and chip stock investors took this as a bullish signal.

Both companies reported revenue and earnings that crushed analyst expectations, and their guidance was equally as staggering. Even more, these companies' reports confirmed that the AI revolution is so big that it's expanding far beyond just graphics processing units (GPUs).

"The next wave of AI will bring intelligence closer to the end user, moving from foundational models to inference to agentic," explained Intel CEO Lip-Bu Tan in the company's first-quarter update. "This shift is significantly increasing the need for Intel's CPUs and wafer and advanced packaging offerings."

Imag source: Getty Images.

On a similar note, Texas Instruments CEO Haviv Ilan explained during the company's first-quarter earnings call that it is well-positioned to capture the growing demand for power electronics, as they are a critical enabler of the significant power and energy going into data centers in an AI era. As a key driver of Texas Instruments' biggest product segment, Analog (which accounts for more than 81% of Texas Instruments' total revenue), management views its strength in power electronics as a competitive advantage as the AI boom continues to unfold.

With such strong reports from these two companies confirming a seemingly insatiable appetite for AI-enabled cloud computing infrastructure, investors bid up the prices of not just these chip stocks last week, but many others as well, including AMD, Nvidia, and more.

But with these chip stocks' gains last week coming on top of already robust performances, are chip stocks finally becoming overbought?

Explosive growth

Sure, most chip companies' growth stories right now are exceptional. Intel's first-quarter revenue growth rate came in at 7% year over year, flipping from a 4% year-over-year decline in the prior quarter, suggesting that the company's turnaround efforts may be gaining traction. Meanwhile, Texas Instruments' first-quarter revenue growth rate accelerated from 10% in the fourth quarter of 2025 to 19% growth in Q1.

These chip stock reports build on Broadcom's impressive report last month, when the company's fiscal first-quarter revenue growth rate accelerated to 29%, fueled by a 106% year-over-year increase in its AI-related revenue, with the primary driver for this revenue being custom AI accelerators and AI networking.

Even more, management impressively said in its first-quarter earnings call it has a "line of sight" to annual AI revenue "in excess of $100 billion" by next year (up from an annualized AI revenue run rate today of just over $33 billion).

And of course, all of this is on top of Nvidia's fiscal fourth-quarter results in late February, which demonstrated accelerating revenue growth once again, as the company saw sales rise 73% year-over-year and 20% sequentially to $68.1 billion.

"[C]ompute demand is skyrocketing, and the ChatGPT moment of agentic AI has arrived," declared Nvidia founder and CEO Jensen Huang during the company's most recent earnings call.

What about valuation?

There's no mistaking it. The AI boom is real. And it's not slowing down.

But have investors already fully priced in the boom?

To give you a window into the market's optimism for the AI revolution to continue, consider the forward price-to-earnings ratios of all of the chip companies mentioned in this article. As a forward-looking valuation metric that takes into account analysts' consensus forecast for earnings per share over the next 12 months, this valuation approach arguably does a better job of showing how the market is pricing these stocks, since all of them are expected to report significant earnings growth over the next 12 months (but at meaningfully different trajectories). The forward price-to-earnings ratios for Intel, Texas Instruments, AMD, Broadcom, and Nvidia now sit at about 160, 37, 51, 38, and 26, respectively.

While some of these ratios may seem reasonable given the staggering momentum of the AI boom, I'd challenge investors to consider two factors that may call that conclusion into question.

First, note that these are forward price-to-earnings ratios on extremely elevated earnings trajectories. In other words, these valuations are not based on anything close to normalized, mid-chip cycle earnings; and -- don't forget -- they're not even based on trailing earnings.

Second, and perhaps more importantly, there are limits to every supply chain. And many chip stocks share suppliers and parts across their sprawling, global supply chains. At some point, therefore, production constraints can not only suppress growth but even stop it.

In short, I think it's OK to embrace two diverging and almost conflicting conclusions at once: The AI boom is alive and well, and, meanwhile, chip stocks' valuations have -- in aggregate -- become stretched.

All of this to say, when it comes to chip stocks, I'm staying on the sidelines at these valuations.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Intel, Nvidia, and Texas Instruments. The Motley Fool has a disclosure policy.