Better Buy: Advanced Micro Devices, Inc. vs. Cypress Semiconductor

You know Advanced Micro Devices (AMD 0.69%) as the designer of Radeon-branded digital graphics chips and Ryzen processors. Cypress Semiconductor (CY) flies below the consumer radar as a provider of touchscreen controllers, NOR flash memory chips, and a variety of embedded processors.

The two companies are technically neighbors in the semiconductor industry, but their businesses could hardly be more different if they tried. The same goes for their stocks, which appeal to very different investing temperaments.

So should you own Cypress or AMD today? Let's have a look.

Image source: Getty Images.

By the numbers

Data were taken from YCharts and Finviz. TTM = Trailing 12 Months.

The turnaround story

AMD was in dire straits just a couple of years ago. At the start of 2016, the company's sales were plunging and its cash flows were written in red ink. Fellow Fool Leo Sun found himself considering the possibility that AMD might be headed for bankruptcy if the then-upcoming refreshes to its CPU and graphics architectures turned out to be duds.

As we know now, both of those launches hit the bull's-eye. Gamers, PC enthusiasts, and even server system builders snapped up the new products in droves. And the graphics product refresh was particularly timely in light of the surging interest in cryptocurrency mining, where AMD's latest and greatest chips could be used to earn significant sums of digital currencies.

So AMD's top-line sales surged 53% higher in three years, bringing earnings and cash flows back into positive territory. Investors enjoyed a thrilling 1,240% return over that period.

The value play

Cypress runs an extremely diverse business. Its largest clients include leading automakers, the biggest names in networking equipment, leaders in the industrial manufacturing sector, and every consumer electronics name from Apple (AAPL -0.57%) to Nintendo. No single customer accounts for more than 10% of Cypress' annual revenues. No, not even Apple, even though you'll find Cypress chips at the heart of the iPhone X's fast-charging systems.

The company claims to be the largest global provider of seven important product categories, such as USB-C controllers, automotive dashboard instrument processors, and combined Wi-Fi and Bluetooth chips for the Internet of Things.

Revenues did surge 80% higher in the three-year period we considered in AMD's case, but there's no magic-bullet product launch or exciting new customer to thank for that boost. The 2016 acquisition of Broadcom's wireless IoT products operation provided a modest jump, but most of the revenue increase came from organic growth in a healthy market environment.

The resulting business trends might put you to sleep, but you'll be dreaming sweet dreams of beautiful cash flow growth:

CY Revenue (TTM) data by YCharts.

The final verdict

For AMD, the pressure is always on to deliver another big hit in the next technology refresh cycle. There's another one underway already, and the company could strike it rich, as chief rival Intel (INTC -1.79%) is lagging behind AMD's manufacturing partners in terms of next-generation process technologies. But it's always a risky bet and AMD has a long history of whiffing when it matters the most. Oh, and the cryptocurrency tailwind already faded to nothing. In short, it takes the heart of a gambler to invest in AMD at these nosebleed valuations and at this uncertain market juncture.

Cypress, on the other hand, is poised for success without betting the farm on any single client, product launch, or even a particular market sector. The company has a finger in enough pies to keep the good times rolling as long as embedded chips stay hot. Since that assumption taps into several secular macro trends such as automotive computing, high-speed networking, and the Internet of Things, Cypress looks like a safe bet for years to come.

And it's not even expensive, to begin with.