Intel and AMD, which hold a near-duopoly in x86 CPUs for PCs and servers, have treated investors very differently over the past three years.
During that time, Intel's stock price rose nearly 25% but underperformed the Nasdaq's 85% gain. Its manufacturing issues, chip shortages, market share losses, and the abrupt resignation of its CEO in 2018 all weighed down its stock.
Meanwhile, AMD's stock price surged nearly 670% as it profited from Intel's missteps. It produced smaller and more cost-efficient chips than Intel, didn't suffer any chip shortages, held its ground against NVIDIA (NVDA -9.15%) in gaming GPUs, and stuck to its long-term roadmap under its visionary CEO.
However, past performance never guarantees future gains, so we should take a fresh look at both chipmakers to see if AMD is still the better buy.
Image source: Getty Images.
The key differences between Intel and AMD
Intel generated 56% of its revenue from PC-centric chips last year. It generated 36% of its revenue from data center chips, while the remaining 8% came from other types of chips -- including IoT (Internet of Things) chips, programmable chips, computer vision chips, and memory chips.
Intel agreed to sell most of its memory chip business to SK Hynix last October, and it's developing discrete GPUs to complement its CPUs and compete against NVIDIA and AMD. However, Intel's core business still mainly relies on its sales of x86 CPUs for PCs and data centers.
Intel manufactures its own chips with its internal foundry. But Intel's foundry fell behind Taiwan Semiconductor Manufacturing (TSM -2.83%), the world's largest third-party foundry, in the "process race" to create smaller chips in recent years. Those mistakes clogged up Intel's foundries and caused shortages of its latest CPUs.
AMD, which outsources the production of its CPUs and GPUs to TSMC instead of manufacturing them internally, didn't struggle with any shortages. As a result, AMD's share of the global x86 CPU market more than doubled from 18.1% to 39.4% between the first quarters of 2017 and 2021, according to PassMark Software, as Intel's market share plunged from 81.9% to 60.5%.
Last year, AMD generated nearly two-thirds of its revenue from its computing and graphics segment, which sells its Ryzen CPUs and Radeon GPUs. The rest of its revenue came from its EESC (enterprise, embedded, and semi-custom) business, which mainly sells custom chips for gaming consoles (including Sony's PS5 and Microsoft's Xbox Series consoles) and Epyc CPUs for data centers.
Which chipmaker is growing faster?
Based on these facts, it's easy to see why AMD grew at a faster clip than Intel over the past three years.
Data source: Annual reports. YOY = year over year.
AMD's growth decelerated in 2019, mainly due to slower sales of gaming consoles. However, its growth accelerated again in 2020 as it launched its new Ryzen CPUs and Radeon GPUs, while Intel's ongoing chip shortage continued to generate tailwinds for both its PC and data center businesses.
Intel's overall revenue growth initially seems stable, but its data center chip sales declined year over year in the second half of 2020 -- which partly offset its higher sales of PC CPUs during the pandemic.
Intel recently outsourced the production of some of its chips to TSMC to resolve its ongoing shortages, but it doesn't expect to launch its next-gen 7nm chips until 2023. AMD launched its first 7nm CPUs back in 2019, and it will likely launch its first 5nm chips in 2022.
Profitability and valuations
After Intel's former CEO Brian Krzanich resigned in 2018, CFO Bob Swan took the helm and mainly focused on cutting costs and repurchasing shares instead of resolving Intel's R&D problems.
Meanwhile, AMD continued to generate explosive earnings growth without relying on buybacks or cost-cutting measures. Instead, it reinvested most of its cash back into the development of its new chips.
|
EPS Growth (YOY) |
2018 |
2019 |
2020 |
|---|---|---|---|
|
Intel |
32% |
6% |
9% |
|
AMD |
360% |
39% |
102% |
Data source: Annual reports. YOY = year over year. Non-GAAP.
Intel's new CEO, Pat Gelsinger, is trying to get the chipmaker back on the right track, but that process could take years.
AMD's CEO, Lisa Su, has led the chipmaker's ongoing turnaround since 2014. Su's main strategies, which include the expansion of AMD's gaming console business and the development of new chips that address the performance issues of prior generations, will continue to cause headaches for Intel.
Analysts expect Intel's revenue and earnings to decline 7% and 13%, respectively, this year. Those dismal growth rates indicate Intel's stock still can't be considered cheap at 14 times forward earnings.
Wall Street expects AMD's revenue and earnings to jump 38% and 53%, respectively, this year. Those growth rates easily justify its higher forward P/E ratio of 31. We should always be skeptical of analysts' forecasts, but AMD clearly looks like a much healthier investment than Intel.
The winner: AMD
Intel's low valuation and forward dividend yield of 2.1% might limit its downside potential, but I believe it will underperform AMD again this year. Intel isn't doomed yet, but Gelsinger must resolve the company's biggest problems before I consider this classic chipmaker to be a worthy long-term investment again.
