Applied Materials Inc. (NASDAQ:AMAT) and Intel Corporation (NASDAQ:INTC) announced on October 6 that they are expanding their partnership on next-generation AI chipmaking. The two will work together on transistors, the wiring that connects them, and advanced packaging. That includes Intel’s Foveros technology for stacking chips in 3D. Teams will work out of Applied’s EPIC Center in Silicon Valley and Intel’s research campus in Oregon. Intel CEO Lip-Bu Tan said the goal is to move new technology from the lab into high-volume U.S. production faster. The Intel deal adds another dimension to Applied Materials’ growth story. But before judging AMAT by its valuation, see what Jim Cramer thinks investors may be missing.
Intel: Packaging Could Be Its Fastest Foundry Win
In my view, packaging is the most promising part of Intel’s turnaround. Winning customers for its chipmaking process takes years, but packaging deals can come much faster. CFO Dave Zinsner has said packaging can reach 40% gross margins, and some deals could be worth billions of dollars a year. Industry reports have linked Intel to potential advanced packaging deals with major cloud customers, although these arrangements have not been publicly confirmed. Working with Applied should help Intel bring new packaging technology into production sooner. INTC’s growth story is gaining another potential catalyst. Want to see which other companies made our top 10 growth stock list? Check out the picks favored by billionaire investors.
Intel’s valuation is where I turn more cautious. The forward non-GAAP P/E of 73.94x sits about 20% above its 5-year average. The forward Price-to-sales ratio is much steeper. At 9.37x, it sits nearly three times its average of 3.17x. Its EPS outlook is strong. Analysts expect earnings to grow 37% in 2027 and 48% in 2028, but justifying the premium it holds is still not easy. The company also carries about $21 billion in net debt.
Applied Materials: It Wins Either Way
Applied’s position is simpler. It supplies equipment to most major chipmakers, giving it opportunities to benefit regardless of which foundry gains market share. Packaging is also one of its fastest-growing areas, with management expecting packaging revenue to grow more than 70% in calendar 2026. Deeper work with Intel keeps Applied’s tools at the center of the next wave of chip designs.
Applied’s stock isn’t cheap either. Its forward non-GAAP P/E of 41.47x is nearly double its 5-year average, while the forward Price-to-sales ratio of 12.29x sits at more than twice its average. Its EPS trajectory is solid as well, with growth of 28% to 44% expected through 2028. The difference is that unlike Intel, Applied is net cash positive.
Hedge funds piled into Intel. Funds holding it rose from 112 in Q1 to 138 in Q2. The value of their stakes more than tripled from $8.7 billion to $28.2 billion. Applied’s fund count stayed nearly flat at 137, but stake values rose from $10.3 billion to $16.7 billion.
Intel may have more to gain from this partnership, but its elevated valuation already reflects substantial turnaround expectations. I think Applied Materials offers a steadier way to benefit from the same packaging boom.
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