After a disastrous year in 2024 when shares of Intel (INTC +0.78%) crashed by more than 60%, you probably wouldn't have expected such a sharp turnaround in its fortunes this year. But that's exactly what has happened. As of Dec. 5, Intel's year-to-date gain was 107%, putting it on track for one of its best years in decades.
These types of gains aren't typical for Intel; the company hasn't been much of a growth stock in recent years. While it remains a big name in tech, its market cap is around $190 billion, which puts it well behind the biggest names in the sector.
The big question, however, is whether that valuation is too high for the business, or if Intel could be due for even greater gains next year, and if it can build on its impressive rally.
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What has been driving Intel's surge this year?
Intel's stock didn't really take off until around September, shortly after management announced it had reached what was called a "historic agreement" with the Trump administration that would see the U.S. government take a 10% stake in the business.
The government has been looking for ways to increase chip production domestically to reduce its reliance on foreign countries, and Intel has looked like an obvious path to do so. And by investing in the tech company, that may have given the stock some added safety and security, at least in the eyes of retail investors.
A bigger catalyst, however, came in mid-September when chipmaker Nvidia announced it would be investing $5 billion in the company. That resulted in the stock skyrocketing more than 22% in a single day, which was Intel's best performance since 1987. Investors were thrilled with the news, even though the agreement doesn't appear to suggest that Nvidia will manufacture its chips using Intel's foundry.
The company's fundamentals remain a concern
The reasons for Intel's rise in value are mainly speculative, relying on the hope that its business will improve and grow. Unfortunately, it's not due to its own fundamentals, and that's a cause for concern, because when a stock's rally is based on speculation, it can make it a volatile investment to hang on to.
The company has incurred an operating loss in two of the past three quarters. And its foundry business experienced a 2% decline in revenue for the most recent period (which ended on Sept. 27), while incurring a $2.3 billion loss.
The stock is trading at a forward price-to-earnings multiple of 57, which is based on analyst estimates. That's a high premium for a business that's struggling to grow and that still needs to prove it can get out of the red on a consistent basis.
Investors shouldn't count on a repeat performance in 2026
The last time Intel's stock doubled was in 2003 when it rose by 106%, and that was also after a big crash in the previous year, when it lost more than half of its value. The stock may do better than it did back then, because this year could be its best performance since 1996, when shares rose by 131%.
But as well as the stock has done of late, investors shouldn't expect these types of gains to continue next year. In 1997, following its large rally, shares rose by just 7%. And in 2004, after doubling the previous year, they would go on to fall by 27%.
NASDAQ: INTC
Key Data Points
The past doesn't predict the future, but the mammoth rally for Intel this year has truly been exceptional and a rarity for the stock. If the business were in the midst of a successful turnaround, I could see why it may continue to rally next year, but that isn't the case. There's still ample risk here, especially with its valuation being as high as it is.
Intel's stock is riding high right now, but investors shouldn't expect these types of gains to continue in 2026, since they have largely been due to speculation rather than fundamentals.
