Semiconductor stocks have been clobbered hard on the market this year, as the 31% decline in the PHLX Semiconductor Sector index indicates. And not surprisingly, its components, such as Advanced Micro Devices (AMD -0.17%) and Intel (INTC -0.03%), have also plunged big time.
Share prices of AMD and Intel are down 43% and 25%, respectively, so far in 2022. Both companies could be in for more pain in the near term, as the demand for personal computers (PCs) is falling at an alarming pace. However, Intel's solid dividend and its turnaround efforts could attract investors to the stock following its slide this year. Similarly, AMD's guidance points toward terrific growth in 2022, and analysts are confident that it could sustain its impressive momentum in the long run as well.
So, which of these two beaten-down chipmakers should investors consider buying right now? Let's find out.
AMD is beating Intel hands down on this front
AMD stock may have taken a bigger beating this year as compared to Intel, but the company's financial performance has been way better.
AMD's revenue was up 71% year over year in the first quarter of 2022 to $5.9 billion. This impressive growth was driven by healthy sales of its Ryzen CPUs (central processing units) and Radeon GPUs (graphics processing units), and a record performance from the enterprise, embedded, and semi-custom (EESC) business, which includes sales of server processors and semi-custom chips used in gaming consoles.
AMD also benefited from the acquisition of Xilinx that it completed in February 2022, though its organic revenue growth remained solid at 55% over the year-ago quarter. More importantly, AMD's non-GAAP gross margin increased 660 basis points year over year in the first quarter (including the Xilinx acquisition), which allowed the company to more than double its earnings per share.
Intel, on the other hand, cut a sorry figure. Chipzilla's revenue fell 1% over the prior-year period to $18.4 billion. Adjusted earnings crashed 35% year over year to $0.87 per share, thanks to a big drop in the company's margins.
The stark difference in the financial performance of both companies indicates that AMD is enjoying an upper hand as it competes with Intel in the CPU and GPU (graphics processing units) markets. That's not surprising, as AMD has been taking share away from Intel in the client and server CPU markets thanks to its technology advantage. Meanwhile, AMD enjoys a stronger market share of 17% in the discrete graphics card space, compared to Intel's 4%.
Not surprisingly, AMD expects to finish 2022 with eye-popping revenue growth of 60%. The company's bottom line should also increase substantially as it anticipates an adjusted gross margin of 54% this year, compared to 48% last year. Intel, meanwhile, forecasts $3.50 per share in earnings in 2022 on revenue of $76 billion. The company generated $74.7 billion in revenue last year along with adjusted earnings of $5.47 per share, so its bottom line is set to contract by a big margin.
What's more, Intel's long-term prospects fade in front of AMD. For instance, AMD is expected to clock annual earnings growth of 28% for the next five years, while Intel's bottom line is expected to grow at just 3% a year over the same period. That's not surprising, as Intel is currently trying to turn its fortunes around and arrest its market share losses, which is why it has decided to ramp up investments in capacity and research and development.
AMD's technology lead and its lucrative prospects in the data center market, as well as other areas such as gaming consoles where Intel doesn't have a presence, give it an upper hand on the growth front.
So, is AMD the better buy?
AMD is growing much faster than Intel, which is why it carries a richer valuation. AMD stock trades at 29 times earnings, compared to Intel's price-to-earnings ratio of 6. Of course, Intel has a nice dividend yield of nearly 4% that AMD doesn't offer, but the latter has solid upside potential thanks to its faster growth.
Analysts, on the other hand, aren't expecting substantial gains from Intel until 2026. It is also worth noting that AMD seems to be in a better position to weather the downturn in the PC market. That's because AMD is the smaller player in client CPUs, with a 22.5% share of the notebook processor market and an 18.3% share of the desktop CPU space. Given that AMD has been consistently scoring gains against Intel in the client and the server CPU markets, it could mitigate the volume declines in the PC market by gaining more share.
Additionally, AMD's focus on the "premium, gaming and commercial portions" of the PC market, as well as its expectation of continuing its share gains in lucrative areas such as data center chips, could help it sustain its healthy growth. So even though Intel might be cheap, AMD looks like the better semiconductor stock to buy right now.
