The Blancos have long been linked with a move for the Brazil international, with speculation having rumbled on since the former Barcelona star completed a record-breaking €222 million switch to France in the summer of 2017.
That interest is reported to have been stepped up during World Cup 2018, although Madrid have moved to distance themselves from talk of a €310m (£275m/$360m) bid being tabled.
Valdano can understand why Real are interested in Neymar, with his commercial value as important as his sporting ability, but feels that the best option on PSG’s books would be Mbappe – with the teenage striker currently starring in Russia on a global stage.
The former Blancos player and coach told Onda Cero: “Neymar would have plenty of value in terms of both marketing and football.
“I think Madrid have interest in him, but I do not know about any offers or any potential bids but it would be nearly impossible to sign a player who can sell a lot like him.
“I would prefer if they go for Mbappe as he would be a long-term investment because he is six years younger and is already at the top level.
“He scores lot of goals, plays direct attacking football, breaks through defences and he will define the next decade of football, he reminds me of Ronaldo Nazario.
“I believe Mbappe is also a good person.”
Mbappe is due to complete a €180m move to PSG this summer, with Monaco having sanctioned an initial loan deal for 2017-18.
Madrid were keen before that agreement was reached, with a fee having been agreed to take him to Spain.
Monaco’s vice-president Vadim Vasilyev told Canal+: "I remember we were training when we got the call from Real Madrid and accepted the €180m offer for Mbappe.
"Later, I saw him and told him 'we have received an offer that was impossible to refuse from the club of your dreams so tell me your answer'. We never wanted to make the choice for him, it was up to him to make his decision.
"He told me that he wanted to go to Paris and, after that, there were so many details that had to be resolved that, until the final moments, I doubted the deal."
It could be that Real’s interest is rekindled, but PSG are reluctant to part with any of their prized assets and will be doing their utmost to fend off any interest in Neymar and Mbappe.