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Nasdaq Drops Another 1%; Intel's Pain is AMD's Gain

By Dan Caplinger – Jul 24, 2020 at 4:30PM

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Friday marked the third straight losing week for the tech-heavy benchmark.

The stock market had another losing session on Friday, and the Nasdaq Composite (^IXIC 0.50%) and Nasdaq-100 both fell around 1% on the day. That was slightly worse than other large-cap stock benchmarks, but the underperformance wasn't as significant as it has been in past sessions.

It's easy to forget that individual stocks don't always move in lockstep with the overall market. On Friday, Intel (INTC 0.89%) announced news that shocked investors in the semiconductor giant's stock. However, gains in Intel archrival Advanced Micro Devices (AMD 0.39%) offset some of the decline for the broader indexes.

Person wearing safety glasses, face mask, and glove holding a semiconductor chip with two fingers.

Image source: Getty Images.

Intel risks falling behind

Shares of Intel plunged 16%, with only its relatively low share price preventing it from having a more significant downward impact on the Dow Jones Industrials. Second-quarter earnings results were actually fairly good, but Intel foresees trouble ahead that could prevent it from keeping up with the pace of competition from AMD and other chip-making semiconductor companies.

Intel's financial numbers were solid. Revenue climbed 20% from year-ago levels, with net income also seeing double-digit percentage increases year over year. CEO Bob Swan attributed the strong quarter to the boost in demand for digital connectivity, citing cloud-based services, working from home, and 5G network buildouts in helping demand for Intel products.

However, Intel has run into catastrophic obstacles in its plans for future technological advances. The company announced a delay in its transition plans toward products utilizing 7-nanometer manufacturing processes, as yield tests suggest that Intel is about 12 months behind its internal targets. That caused Intel to shift its product timeline back six months into late 2022 or early 2023.

Intel will accelerate its plans to implement 10-nanometer processes in response, but investors weren't pleased with the failure on cutting-edge solutions. Moreover, shareholders were especially concerned about the idea that Intel might have to turn to third-party foundries rather than keeping its production in-house.

The winners from Intel's troubles

When companies are getting something wrong, competitors that are getting it right thrive. AMD was the big beneficiary of Intel's woes, rising 17% on the day. Taiwan Semiconductor Manufacturing (TSM -0.93%), which is responsible for manufacturing AMD's processor designs, picked up nearly 10% on the day.

AMD has already made big strides in its long battle against Intel. Earlier this week, AMD's new Ryzen 4000 G-series of desktop processors made its debut, taking advantage of 7-nanometer processes and integrating high-quality graphics capabilities into the processor. Analysts had already anticipated that AMD might be able to take away market share from Intel in the desktop PC market as a result of the new product line.

Now, though, AMD's market share opportunity could be even larger. If major original equipment manufacturers start to lose faith in Intel's ability to deliver top-of-the-line processors, they could start defecting to AMD.

Intel and AMD have butted heads for decades now, and there's no sign the fight will end anytime soon. However, AMD has already come a long way toward making its own name in the semiconductor stock space. The latest news from Intel just makes it more likely that AMD could eventually emerge victorious.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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