Best Buy: Advanced Micro Devices (AMD) vs Intel

Intel and AMD, who hold a near duopoly in x86 PC and server processors, have treated investors very differently over the past three years.

Meanwhile, Intel’s share price rose nearly 25% but underperformed the Nasdaq85% gain. Its manufacturing woes, chip shortages, market share losses and the abrupt resignation of its CEO in 2018 have all weighed down its action.

Meanwhile, AMD’s stock price jumped nearly 670% taking advantage of Intel’s missteps. It produced smaller, more cost-effective chips than Intel, suffered no chip shortages, stood firm against NVIDIA (NASDAQ: NVDA) in gaming GPUs, and stuck to its long-term roadmap under the leadership of its visionary CEO.

However, past performance is never a guarantee for future gains, so we should take another look at both chipmakers to see if AMD is still the best buy.

The main differences between Intel and AMD

Intel generated 56% of its revenue last year from PC-centric chips. It generated 36% of its revenue from data center chips, while the remaining 8% came from other types of chips – including Internet of Things (IoT) chips, programmable chips, vision chips. computer and memory chips.

Intel has agreed to sell most of its memory chip business to SK Hynix last October, and it is developing discrete GPUs to complement its processors and compete with NVIDIA and AMD. However, Intel’s core business still relies primarily on its sales of x86 processors for PCs and data centers.

Intel manufactures its own chips with its in-house foundry. But Intel’s foundry is behind schedule Semiconductor manufacturing in Taiwan (NYSE: TSM), the world’s largest third-party foundry, in the “process race” to create smaller chips in recent years. These errors have clogged Intel’s foundries and caused shortages of its latest processors.

AMD, which outsources the production of its CPUs and GPUs to TSMC instead of manufacturing them in-house, has not experienced a shortage. As a result, AMD’s share of the global x86 processor market has more than doubled from 18.1% to 39.4% between the first quarters of 2017 and 2021, according to PassMark Software, the market share of Intel having fallen from 81.9% to 60.5%.

Last year, AMD generated almost two-thirds of its revenue from its IT and graphics segment, which sells its Ryzen processors and Radeon GPUs. The remainder of its revenue comes from its CESE business (enterprise, embedded and semi-custom), which primarily sells custom chips for game consoles (including SonyPS5 and MicrosoftXbox Series consoles) and Epyc processors for data centers.

Which chipmaker is growing the fastest?

Based on these facts, it’s easy to see why AMD has grown faster than Intel over the past three years.

Data source: annual reports. YOY = year after year.

AMD’s growth slowed in 2019, mainly due to slowing sales of game consoles. However, its growth accelerated again in 2020 with the launch of its new Ryzen processors and Radeon GPUs, while Intel’s chip shortage continued to generate favorable winds for both its PC and data center businesses.

Intel’s overall revenue growth initially appears stable, but its data center chip sales declined year on year in the second half of 2020 – which partially offset its higher PC processor sales during the pandemic. .

Intel recently outsourced production of some of its chips to TSMC to address its lingering shortages, but it does not plan to launch its next-gen 7nm chips until 2023. AMD launched its first 7nm processors in 2019, and it will be probably launched. its first 5nm chips in 2022.

Profitability and evaluations

Following the resignation of former Intel CEO Brian Krzanich in 2018, CFO Bob Swan took over and mainly focused on cost cutting and share buybacks instead of solving R&D issues. from Intel.

At the same time, AMD continued to generate explosive profit growth without relying on buyouts or cost-cutting measures. Instead, it reinvested most of its cash in developing its new chips.

Data source: annual reports. YOY = year after year. Non-GAAP.

New Intel CEO Pat Gelsinger is trying to get the chipmaker back on track, but that process could take years.

AMD CEO Lisa Su has been leading the chipmaker’s ongoing turnaround since 2014. Su’s main strategies, which include expanding AMD’s game console business and developing new chips that address the performance issues of previous generations, will continue to cause headaches for Intel. .

Analysts expect Intel’s revenue and profits to fall 7% and 13%, respectively, this year. These dismal growth rates indicate that Intel stocks still cannot be considered cheap at 14 times earnings eventually.

Wall Street expects AMD’s revenue and profits to grow 38% and 53%, respectively, this year. These growth rates easily justify its higher forecast P / E ratio of 31. We should still be skeptical of analysts’ forecasts, but AMD clearly appears to be a much healthier investment than Intel.

The winner: AMD

Intel’s low valuation and 2.1% forward dividend yield could limit its downside potential, but I think it will underperform AMD once again this year. Intel is not doomed just yet, but Gelsinger must tackle the company’s biggest problems before it again sees this classic chipmaker as a worthy long-term investment.