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Buy AMD as It Can Crush Intel Again in 2021

By Harsh Chauhan - Feb 11, 2021 at 9:46AM

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The chipmaker lost market share to its bigger rival last quarter, but that shouldn't be a cause for concern.

Advanced Micro Devices (AMD 3.55%) has come out on top in its fight against Intel (INTC 2.46%) for the x86 processor market in 2020, according to the latest market share numbers from Mercury Research.

Though there has been noise of Intel gunning for a comeback as its market share climbed in the fourth quarter of 2020 on a sequential basis, AMD investors need not be worried. The chipmaker looks all set to expand its market share further in 2021. Let's see why.

AMD dented Intel badly in 2020, and it isn't done yet

AMD exited the fourth quarter of 2020 with 21.7% of the overall x86 processor market (including desktops, laptops, and server processors) under its control. Intel commands the remaining market share. This is lower than the 22.4% share AMD held at the end of the third quarter but substantially higher than the 15.1% share it held at the end of the fourth quarter of 2019.

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So, Q4 2020 was a big win for AMD as its x86 market share increased more than 7 percentage points as compared to the year-ago quarter. Chipzilla's market share increased just 70 basis points sequentially. What's more, Intel's quarter-over-quarter gains pale in comparison to what AMD achieved during the year.

Mercury Research adds that AMD gained 6.2 percentage points of the x86 processor market on an annual basis in 2020, while Intel lost 3.7 percentage points. It may not be long before AMD reclaims the small market-share loss it incurred last quarter for a few simple reasons.

For instance, AMD lost 1.2 percentage points in market share (on a quarter-over-quarter basis) to Intel in the notebook processor space last quarter. But it is in a solid position to bounce back after the launch of its latest laptop processors. One of the reasons why that may happen is because the new Ryzen 5000 laptop processors are expected to be deployed in 50% more notebooks as compared to their predecessors.

AMD had announced its Ryzen 5000 mobile processors in January this year, and the first laptops based on those chips have started rolling out already. So, Intel will have reasons to worry as more Ryzen 5000-based laptops hit the market.

Meanwhile, AMD lost just 80 basis points (quarter over quarter) in market share to Intel in the desktop processor space. There are two reasons why this happened. First, the chipmaker saw a huge spike in demand for its latest desktop processors that reportedly outpaced supply, forcing vendors to sell older AMD chips.

One AMD executive pointed out in November last year that demand for the Ryzen 5000 desktop processors is exceeding supply, which doesn't seem surprising as they trumped Intel's offerings on the performance front. So, AMD had a supply problem, and Intel tried taking advantage of that by ramping up its output.

This is the second reason why AMD lost market share in desktops. But AMD investors need not be worried about this as Intel's gains were reportedly a result of higher shipments of lower-end CPUs (central processing units). AMD, on the other hand, seems to have given priority to its higher-end chips to milk higher margins. CEO Lisa Su pointed out on the latest earnings conference call that the supply constraints were in the "low end of the PC market."

Not surprisingly, AMD is enjoying stronger pricing power in the desktop CPU market while Intel's average selling price is retreating. AMD is working to bring more production capacity online (according to Tom's Hardware), so it should be able to reverse the small loss of market share in the desktop PC market in the future.

Don't miss the potential gains on offer

By now, it is evident that AMD's sequential market share loss was just a blip on the radar that has more to do with the launch timing of its latest laptop processors and a supply shortage.

At the same time, investors shouldn't miss the fact that AMD continued to take away share from Intel in the server processor market. It exited the fourth quarter of 2020 with a 7.1% share of server processors, up from 6.6% in the third quarter and 4.5% in the year-ago period. This market presents a huge opportunity for AMD, and it can take advantage of the same with an updated product line this year.

In all, AMD can get back to its market share winning ways sooner rather than later, which is why investors shouldn't let go of a great opportunity to buy the stock.

AMD Chart

AMD data by YCharts

Shares of the chipmaker have lost ground of late, but that's a blessing in disguise as the pullback has made AMD stock more affordable. AMD is trading at just 44 times trailing earnings, way below its five-year average multiple of 134. And with the company on track to deliver a nice spike in revenue and earnings this year, now looks like a good time to go long on this growth stock.

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Stocks Mentioned

Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$102.26 (3.55%) $3.51
Intel Corporation Stock Quote
Intel Corporation
INTC
$44.55 (2.46%) $1.07

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