Why I'm Avoiding This Popular AI Stock Despite Its Growth Story

Many technology companies with significant exposure to artificial intelligence (AI) have crushed broader equities in recent years. That makes sense. The industry has experienced sustained demand with few signs of a slowdown. It may still be time to cash in on the AI boom, but not every AI stock is created equal. Sometimes, even when their financial results look excellent, it may be best for investors to look elsewhere. In my view, that's the case with Intel (NASDAQ: INTC), an AI company that has climbed about 330% over the past 12 months. Here's why I'd avoid this stock right now.

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Second-quarter results were strong

Intel, one of the leading players in the server CPU (central processing unit) market, is cashing in on rising demand for its products amid the agentic AI boom. Consequently, the company's financial results have improved. In the second quarter, Intel's revenue was $16.1 billion, up 25% year over year. Intel's data center and AI operating segment performed even better. Its sales jumped to $6.3 billion, up 59% compared to the year-ago period. Furthermore, revenue grew much faster than expenses, resulting in stronger margins.

Intel's adjusted gross margin for the period was 41.8%, up from 29.7% in the year-ago period. And Intel turned an adjusted operating loss margin of 3.9% recorded in Q2 2025 into an adjusted operating profit margin of 17.2% this time around. Finally, Intel's adjusted earnings per share were $0.42, versus a comparable loss per share of $0.10 a year prior. In addition to excellent financial results, Intel continues to position itself to profit from the AI boom for as long as possible. The company announced a new AI platform in the second quarter, powered by its Xeon processors, among other technological advances.

So, by all accounts, Intel appears to be in a great position to ride the AI tailwind for a long time.

Some risks to consider

However, there are also reasons to be worried about Intel's prospects. Here are three of them. First, although Intel has made significant progress in addressing the manufacturing issues that plagued it several years ago, they aren't completely gone. The semiconductor company is working hard to put those challenges in the rearview mirror once and for all, and it may succeed soon enough. Still, it's something worth considering.

Second, Intel faces stiff competition, notably from Advanced Micro Devices (NASDAQ: AMD). AMD is also a notable player in the server CPU market and is cashing in on the agentic AI revolution. Of course, competition is almost inevitable, no matter what industry one operates in.

But Intel has actually lost server CPU market share to AMD in recent quarters. Intel will also have to contend with competition from Nvidia (NASDAQ: NVDA), which designed its Vera CPU largely to handle agentic AI workloads and profit from this opportunity. Many companies already rely on Nvidia's GPUs (graphics processing units), so it's not that much of a stretch for them to adopt its entire AI computing platform, including its CPUs, such as Vera, which was released earlier this year.

The point isn't that Intel can't compete, but given its loss of market share to AMD and the potential threat from Nvidia, its outlook doesn't appear as bright as it does when we look at its financial results in isolation. Third, there are valuation concerns. Intel is trading at 56.5x forward earnings. Perhaps that's fair, given how quickly its earnings are growing, but if the obstacles above persist and the company's revenue and earnings growth slow significantly, its share price could decline substantially.

It'd be hard for me to justify investing in Intel right now while Nvidia -- which remains the runaway leader in its core GPU market and should continue to profit from the AI tailwind for a while -- is trading at just 24.2x forward earnings. That's another reason I am avoiding Intel right now: The opportunity cost of purchasing its shares seems too high.

Prosper Junior Bakiny has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has a disclosure policy.