Intel Investors Who Bought During the Peak of the Dot-Com Bubble Are Finally Out of the Red. It's a Painful Reminder of Why Valuations Matter

Intel (NASDAQ: INTC) is having quite a moment. This year, the tech stock has surged around 180%. And over the past 12 months, its gains are even larger at about 340%. Renewed optimism around the business, some big-name investments, and stronger results in its foundry operations are the key reasons for its success.

But it wasn't all that long ago that this wasn't a great stock to own. While it's done well over the past year, some investors have been waiting years, perhaps even decades, to recoup their losses on the stock. That's because it recently hit levels it hasn't been at since the dot-com crash.

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The stock is trading at an extremely high value

For investors who bought shares of Intel around March 2000, when the tech stock was near its peak, they would have still been well into negative territory on their investments as recently as a few months ago. While now their investments would finally have become profitable, they would have had to have held on for more than 26 years.

It may be an ominous sign of just how wild the markets have become yet again. Intel, after all, is once again trading at levels it arguably shouldn't be. While the company has been generating some encouraging results of late, the stock trades at a whopping 125 times its estimated future earnings (based on analyst expectations).

While hope these days is around its foundry business, that area of its operations remains unprofitable -- it incurred an operating loss of $2.4 billion during the first three months of the year. Investors may once again be pricing in a lot of future growth and profitability, which, as history has shown, can prove costly.

Intel's stock has been hot, but its performance over 26 years is a cautionary tale about valuation

Hopefully, no investor has been holding on for 26 years waiting for Intel's stock to produce a positive return, but that could have been a reality for anyone buying at the peak. It's only after there's been a drop in value that you can truly know that a peak has been hit, which is why it can be risky to invest in stocks that are rising fast, because it's impossible to know where the top may be.

The one way investors can protect themselves is by always considering valuations and ensuring they aren't buying a stock at obscene multiples, based on assumptions of significant profit or revenue growth that may never be realized. At such a high valuation again, the risk for those buying Intel stock today is that they could end up repeating the mistakes others made during the dot-com bubble.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.