Intel's Stock Is Up Over 400% Over the Past Year. Are You Too Late to Buy?

A year ago, Intel (NASDAQ: INTC) stock was basically left for dead by investors. Nobody wanted anything to do with it, as its chip business was struggling to hold market share against rising competitors. Additionally, its foundry business was struggling to find any new customers. However, after a series of investments by the U.S. government and Nvidia, Intel seems to have gained new life and is up an incredible 400% over the past year.

With that kind of rise in a short time frame, investors must analyze the stock to determine if this is just the beginning of something new or if Intel's stock is overvalued and has reached its peak. Let's take a look at what's going on with Intel and see if there is more room to run.

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Intel has a lot of future success priced in already

While the chip business has its issues, it's not the division that investors are expecting a turnaround in. Instead, they want to see the foundry business do better, as the current AI build-out landscape should be the perfect backdrop for the foundry division to be booming, but it isn't. During Q1, its foundry business grew only 16% to $5.4 billion. For reference, the top company in this space, Taiwan Semiconductor Manufacturing, saw $35.9 billion in revenue, up 41% year over year.

But Intel could be taking market share from Taiwan Semiconductor in one form. President Trump announced that Apple and Intel have formed a partnership for Intel to act as another foundry, which could give Intel some important new business. That's the kind of announcements investors love to see, but is it enough to justify the stock's current price tag?

The reality is that Intel has a ton of success priced into the stock. It trades for a jaw-dropping 100 times forward earnings right now.

INTC PE Ratio (Forward) data by YCharts

That's pricey for any stock, let alone one undergoing a turnaround. However, because of Intel's woes, its profits aren't optimized, which could account for a lot of its apparent overvaluation. If Intel can return to a profit margin level of about 20% (its average prior to the decline in its business after 2022), then it could produce around $10.8 billion in profits. That would still value the stock at a pricey 51.5 times hypothetical earnings, but it's still better than the 100 times forward earnings it's trading at today.

The reality is that Intel has a ton of turnaround growth priced into its stock. It will have to undergo a major transformation in the next few years to justify its price tag, and I think investors should just stick with Taiwan Semiconductor instead. It's a proven company that doesn't need a turnaround to show that it's back. Instead, it's reasonably priced, growing rapidly, and doesn't have nearly the execution risk that Intel has.

Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.