Replaced. Bottom edges show considerable water damage / rot. You may also want to look at the design and fix that or it will only happen again.

thanks, would you say replace only the side or all sides?

Sigrid said "I would want to know what's on the inside the wood".

And I say amen to that, from the looks of that hole there could be anything from a den of possums to a bunch of bats living in there. Better call animal control to check it out before calling carpenters.

Step one is open it up to see what evil lurks within. If the structure is OK then look at how it is flashed and how that could be improved to keep the ends of the boards from getting wet. I'd definitely get them up a few inches at least from the roof surface. Replacing the sheathing is the easy part. I'd strongly consider using a cPVC product (Azek is the high price spread) to prevent recurrence of the end rot once I was sure the flashing was protecting the underlying structure.

thanks for all the comments! will take a closer look

Assuming this is a wood-framed chase, the chimney is metal. The wood looks like rot; water is getting inside; and a leak at the top can rot out exterior trim and go all the way down to foundation. This is not a paint job. Remove it all; assess the damage; rebuild with weather resistant materials. Don't forget the chase cover.

Be earth kind and find new homes for the evected critters.

thanks for the comments! i poked the exposed area with a stick and it doesn't look like it's rotten(was able to scratch it and leave a mark but it's not soft enough to poke through) is it still the same that the wood needs to be replaced and painted?

" is it still the same that the wood needs to be replaced and painted? "

You can replace it now or within the next year or so. Needs paint now so I would fix it properly before the water damage and potential rot spreads further.

If you can scratch the wood with a stick, it's probably rotting. Usually wood goes soft before it rots. If it was a very sharp stick, maybe it's okay, but an ordinary stick scratching wood is not good. When the wood goes soft, paint doesn't stick. If the wood was soft enough to poke a hole through, you're chinney would be sagging.