Advanced Micro Devices (AMD +3.29%) and Intel (INTC 2.10%) manufacture and compete against each other in many different chip categories. The same factors drive both companies' growth plans: the need for more energy-efficient and powerful chips. But one of these companies is a much better investment than the other.
INTC revenue (quarterly YoY growth) data by YCharts. YoY = year over year; TTM = trailing 12 months.
Intel's disastrous results
Investors gave a loud chorus of boos when they saw Intel's fourth-quarter 2022 report. Revenue declined 32% over the previous year's quarter to $14 billion, which was at the lower end of its guidance.
It lost $0.16 per share on the basis of generally accepted accounting principles (GAAP), underperforming its guidance for a loss of $0.10. Even worse, management gave Wall Street disappointing guidance for the first quarter of 2023. Analysts forecast an adjusted $0.25 earnings-per-share profit, and the company pointed to an adjusted EPS loss of $0.15.
NASDAQ: INTC
Key Data Points
You could attribute the company's recent doldrums to a slowing economy that collapsed the personal computer (PC) manufacturing industry, with demand for PC semiconductors falling.
Unfortunately for Intel, it generated about 50% of its fiscal 2022 revenue from its Client Computing Group (CCG). As a result, the CCG revenue declined 36% year over year in the fourth quarter, severely affecting overall results. But that doesn't explain all of Intel's poor performance.
Intel CEO Pat Gelsinger is attempting to correct the company's poor execution by its previous CEOs that has resulted in Intel losing its technological lead in chip production. Consequently, today its margins are shrinking, it's losing market share, and the company has become unprofitable.
INTC EPS diluted (quarterly) data by YCharts.
Although Gelsinger has a viable plan to restore Intel to its former glory, it is risky and could take several years to play out. Moreover, some investors worry that execution issues will linger.
As a result, you should only invest in Intel stock if you are willing to weather several years of uncertainty and a flat stock price before getting to the prize. In the meantime, other stocks will look like much better investments.
AMD defies the terrible economy
Before AMD presented its fourth-quarter 2022 report on Jan. 31, some investors worried it would produce results similar to those of Intel. However, the angst was unnecessary: Its results were better than investors anticipated.
NASDAQ: AMD
Key Data Points
First, AMD started with one massive advantage over Intel: Its exposure to personal computer products was much lower at 26% of fiscal 2022 revenue. So, although the decline in the PC industry hurt, the pain was much less than for Intel. For instance, instead of AMD's overall revenue declining in the fourth quarter like its main competitor, it grew revenue by 16% year over year.
More than 50% of AMD's overall revenue in the quarter came from its embedded and data center segments, the company's fastest-growing areas.
The data center market in particular is where AMD has been grabbing market share from Intel for the last several years. Its data center revenue increased 42% over the previous year's quarter, driven by increased adoption of the company's EPYC processors by cloud providers.
The best part is that you can expect further market share gains in the data center this year. During the earnings call, CEO Lisa Su said it launched a fourth-gen EPYC processor in November 2022 that is twice as fast and up to 80% more energy efficient than its competitors' most recently announced offerings.
AMD's embedded segment primarily consists of the Xilinx acquisition, which gives AMD a 60% to 70% market share in the field-programmable gate array and system-on-a-chip segment -- a rapidly growing market that will help the chipmaker support a full spectrum of artificial intelligence applications.
However, the company is not entirely immune from macroeconomic weakness. For instance, management projects first-quarter 2023 revenue to reach approximately $5.3 billion, a decrease of roughly 10% year over year and 5% sequentially.
Although the guidance is soft, it's not as weak as many analysts had feared. As a result, investors have more confidence in AMD than in Intel. It's why the stock rose 12.6% the day after earnings were announced.
Which stock should you buy?
Although Intel might turn out to be a decent investment over the long term, there is a lot of execution risk, and it has yet to give much reason to believe its business performance will improve. As a result, most investors are better off avoiding the stock.
Alternatively, AMD is firing on all cylinders, grabbing market share, and making all the right moves. Investors can be more confident that AMD will outperform over the next several years as the economy rebounds -- making it an outstanding stock to put on your buy list.
