Within the Dow Jones Industrial Average (^DJI 0.22%), Intel (INTC -1.96%) has some of the best long-term potential. While times are tough for the chip giant right now, its push to become a contract manufacturer of chips for other semiconductor companies could eventually give it a massive new source of revenue.

Apple (AAPL -1.70%) is undoubtedly a stronger company today, but it's tougher to get behind the long-term story. Here's why Intel is a buy while Apple is a stock to avoid.

Buy Intel

Demand for highly complex and powerful semiconductor chips will likely grow as the artificial intelligence (AI) market booms, and manufacturing those chips will be a lucrative business. Traditionally, Intel has kept its manufacturing operations to itself, churning out PC and server CPUs. But under CEO Pat Gelsinger, the company is aiming to leverage its expertise and facilities to become a major player in the foundry business.

Intel's long-term growth story hinges on this strategy. Right now, its core PC and server chip businesses are struggling. Demand has cratered and rival AMD is chipping away at its leading market share. Those businesses will eventually recover, and Intel has an aggressive roadmap for each. But what makes Intel a long-term buy is its potential to go toe-to-toe with foundry leader TSMC.

Building a foundry business will take time, but Intel has been laying the foundation. The company is making big investments in new facilities, it's on track to roll out five new process nodes in a four-year span, and it has struck some important deals. Notably, it has teamed with ARM to ensure that its upcoming 18A process will be well-suited for any company looking to manufacture ARM-based chips. That would include Apple and a wide range of other companies.

Intel has faced manufacturing-related delays with its own chips over the years, so it's not unreasonable for investors to be skeptical about its ability to launch its upcoming process nodes on schedule. But Intel appears to have put all that in the rearview mirror. The company's latest server and PC chips are built on its Intel 7 process, the Intel 4 process is manufacturing-ready right now, and the Intel 3 process is still on schedule to be manufacturing-ready by the end of the year.

There's no real point in looking at Intel's recent results and talking about price-to-earnings ratios. The company is posting losses thanks to the currently abysmal market for PCs, and it will take time for demand to normalize. But in the long run, the foundry business could become a major source of revenue for Intel. The foundry market topped $100 billion in 2021, and demand for advanced chips should continue to rise in the coming years.

If you can look past the current turmoil in the PC market, Intel is a great long-term bet.

Avoid Apple

Apple is an amazing company, but its stock just doesn't look like a good deal.

Apple is valued at nearly $2.8 trillion. Based on the average analyst's estimate for 2023 earnings, the stock trades for close to 30 times earnings. Revenue and earnings are currently in decline: Revenue sank 2.5% year over year in its most recent fiscal quarter, and net income dropped 3.4%.

The iPhone remains the most important piece of Apple's empire in more ways than one: It accounted for more than half of total revenue in the most recent quarter, and many of the company's other products and services are ultimately dependent on the iconic device. An Apple Watch requires an iPhone, for example, and subscribing to a service like Apple Fitness+ doesn't make much sense without it.

This is a double-edged sword. On the one hand, the ecosystem around the iPhone makes defections much less likely. If an iPhone user also has an Apple Watch, they're probably not going to switch to an Android phone anytime soon. On the other hand, Apple probably isn't going to introduce a new product that has any chance of disrupting its iPhone business. The stakes are just too high.

Are smartphones the be-all and end-all of personal computing devices? Probably not. Will it be Apple that leads the next personal computing revolution? Also probably not. The iPhone will be an overwhelmingly dominant product until it's suddenly not. That change may be many years away, but it's coming eventually.

It's tough to see how Apple could grow quickly enough to justify its current valuation, even if one could safely assume that the iPhone business will never be derailed. And the market is completely ignoring any chance of Apple being disrupted down the road. For those reasons, it's not unreasonable to stay away from Apple stock.