With artificial intelligence (AI) booming, the "Magnificent Seven" stocks (Mag 7) have received a lot of media and investor attention. They're collectively some of the most important companies in the AI ecosystem, so that's not a real shocker.
What might be a shocker, though, is just how much this old-school tech company has outperformed them recently. Over the past 12 months, Intel's (INTC 5.68%) stock is up over 148%. That's over 100% higher than Alphabet, the Mag 7's best performer in that span.
Despite Intel's impressive run (much of which came in the past few months), it's a stock I'm steering clear of.
Image source: Intel.
Why has Intel's stock surged?
Intel can thank the breakthrough in its "18A" manufacturing for much of its recent stock success. In simple terms, the technology rearranges the inside of chips to make them less crowded and more efficient. Sounds simple enough, but it's a big development. And for a company that's had its fair share of innovation questions in recent times, this was an encouraging sign to many people.
While Intel previously struggled to keep pace in its industry, the company decided it was best to take a foundry-first approach, putting most of its eggs in one basket. It's an ambitious and expensive move, but many feel as though it was needed to be able to compete in the semiconductor industry.
Why I'm staying away from Intel
There are two reasons for me steering clear of Intel's stock, with the first being its inability to reasonably compete with Taiwan Semiconductor Manufacturing Company (TSMC). Compared to TSMC's scale and dependability, Intel is a hard sell to many tech companies that rely on chip manufacturers.
Intel has had its fair share of hiccups -- like yield (percentage of working chips) issues -- that make sticking with TSMC the safer choice for most companies. Companies know what they're getting with TSMC, which is sometimes just as important as having the latest technology.
NASDAQ: INTC
Key Data Points
The second reason for me staying away from Intel's stock is its current valuation. As of Jan. 22, it's trading at 88.7 times its projected earnings for the next year, which is very expensive by virtually all standards.
For perspective, it's more than double Nvidia's (39.4), more than three times Microsoft's (27.4), and four times more than Meta's (21.5). All three of those businesses deserve to trade at a premium compared to Intel because their businesses are already thriving with impressive earnings.
At its valuation, a lot of growth is priced into Intel's stock, but it's far from guaranteed to materialize. In fact, it would take a near-perfect execution to justify its current valuation, and that's putting it lightly. Call me a skeptic, but I don't see it happening.
