The rivalry between Intel (INTC -0.04%) and Advanced Micro Devices (AMD 2.94%) is nearly as old as the semiconductor industry itself. As the larger company, Intel led the way for most of that time.
However, since Lisa Su assumed the CEO position at AMD in 2014, AMD's stock has bounced back from penny-stock status, delivering returns of nearly 30-fold during her tenure. Meanwhile, Intel stock floundered for several years. Still, Intel has begun to stage a revival of its own in the past year, raising the question of if it's time to consider Intel, or does AMD stock remain the better investment? Let's see if we can find an answer.
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The case for AMD
When Su became CEO, the declining market for PCs had decimated AMD. And with its stock trading well below $5 per share, many investors had given up on the chip design company.
However, Su changed AMD's emphasis, turning its focus to high-performance computing. She also set the company on a plan to catch up to Nvidia and surpass Intel. Consequently, AMD has challenged Nvidia in many niches, and released its first 7nm chip in 2019, a feat Intel has still not met.
Today, its enterprise, embedded, and semi-custom segment (EESC) has become AMD's growth driver. This includes its EPYC CPUs, the server businesses, and gaming console chips. The computing and graphics segment consists of the Ryzen and Radeon GPUs, notebook and desktop CPUs, and data center chips. Also, with the Xilinx acquisition complete, AMD has gained a segment focused on the supercomputing market.
The main segments have kept growth at impressive levels. In Q1, AMD reported $5.9 billion in revenue, a year-over-year increase of 71%. This includes 88% more revenue in the EESC segment and a 33% increase in computing and graphics.
Non-GAAP net income also shot 148% higher over the same period to almost $1.6 billion as the company limited the growth of its expenses to 44%. This growth should also continue as the company forecasts about $26.3 billion in revenue for 2022, 60% more than in 2021.
Unfortunately, these increases have not helped it escape the recent sell-off in tech stocks, and AMD stock has dropped 40% from its 52-week high. But that decline helped take its P/E ratio down to 39, a multiple that remains well under Nvidia's 53 P/E ratio. When comparing that valuation with revenue growth, many investors may consider AMD stock a buy now.
The Intel comeback plan
Long an industry leader, Intel has struggled amid management turmoil and the loss of its technological edge. So significant were its woes that the chipmaker that long manufactured its chips began outsourcing to Taiwan Semiconductor Manufacturing (TSM 2.66%), better known as TSMC
However, the company changed direction when the current CEO took the top position in February 2021. He founded Intel Foundry Services, making the company a competitor of TSMC and Samsung. To support this business, he has began an aggressive building campaign, investing $40 billion in the U.S. and 80 billion euros in Europe to add capacity.
Gelsinger also wants to reclaim the technical lead for Intel. He has set a goal of producing 7nm chips by next year and surpassing TSMC as early as late 2024. Nonetheless, chip development cycles take three to five years. So Intel has much to prove before investors know whether it will meet its development goals.
Moreover, these objectives could pressure its struggling financials. Q1 2022 revenue came in at $18.4 billion. While that still makes Intel the second-largest chipmaker behind Samsung, revenue fell 7% from year-ago levels. It also reported non-GAAP income of $3.6 billion, 35% less than one year ago. The rising cost of sales and higher expenses cut deeply into profits.
Additionally, since 2022 revenue forecasts of $76 billion amount to only about 1% growth, it will probably not surprise investors that the stock price fell by more than 20% over the last year.
However, these conditions have taken Intel's P/E ratio to just eight, the lowest earnings multiple among major industry players. If Intel can meet most of its goals, it appears positioned for an eventual comeback.
So, AMD or Intel?
As conditions stand now, AMD looks like the better buy. Yes, it is considerably more expensive, but unlike Intel, it has massive growth to push it higher.
Still, investors should consider revisiting this question in future quarters. Chip development cycles take much longer than the 15 months Gelsinger has served as Intel's CEO, so the jury is still out on his strategy. But if Intel can show it's meeting revenue and technological goals, it could turn into the semiconductor stock of choice.
