The stock market's strong start to 2023 has rubbed off positively on shares of Advanced Micro Devices (AMD -0.87%), but rival Intel (INTC -0.94%) hasn't been able to take advantage of the rally.
While AMD stock is up over 18% so far in 2023, outpacing the Nasdaq Composite index's 10% jump, Intel is down about 3.6%. Let's see why that's the case and see if AMD will continue to remain the better semiconductor stock of the two from an investor's standpoint.
The case for AMD
AMD's rally this year has been helped by its better-than-expected fourth-quarter 2022 results, which were released on Jan. 31. Of course, the chipmaker's near-term prospects aren't all that bright thanks to the weakness in the personal computer (PC) market, but CEO Lisa Su's confidence in AMD's data center growth and its ability to take market share away from Intel are probably the reasons why investors gave its latest earnings report a thumbs-up.
Additionally, a report from Mercury Research points out that AMD ended 2022 with 31.3% of the x86 central processing unit (CPU) market under its control, an impressive jump of 5.7 percentage points over the prior-year period. The server market played a key role in AMD's market share jump. Mercury Research estimates that AMD gained an impressive 6.9 percentage points of market share year over year in server CPUs in the fourth quarter of 2022 to 17.6%.
This explains why AMD's data center revenue increased an impressive 63% last year to $6 billion, helping offset the weakness in the PC market to a large extent. A similar story may unfold in 2023 as Su expects the data center business to pick up in the second half of the year, and the CEO feels "very good about our market share position and opportunity to grow with the data center."
Wall Street analysts also expect AMD to gain more share in 2023 thanks to its recently launched fourth-generation server processors that are reportedly better than Intel's Ice Lake processors, especially considering that the former has already built a solid customer base for its latest offerings. According to one estimate from KeyBanc Capital Markets, AMD could exit 2023 with 30% of the server CPU market under its control.
IDC estimates that the x86 server processor market could generate $112.5 billion in revenue in 2023, up from $110.3 billion last year. So, a stronger share of this market could significantly boost AMD's data center revenue and give the company's overall growth a nice shot in the arm as it gets 30% of its revenue from selling data center processors.
The case for Intel
Intel released its fourth-quarter 2022 results at the end of January 2023, and the numbers were terrible. Its adjusted revenue fell 28% year over year to $14 billion in the fourth quarter. Chipzilla also turned in a loss of $0.10 per share for the quarter as compared to a profit of $1.15 per share in 2021. For the full year, Intel's top line fell 16% to $63 billion, while adjusted earnings per share dropped 65% to $1.84 for the full year.
Analysts aren't expecting any better from Intel in 2023. Its revenue is expected to fall nearly 20% to $50.8 billion, while adjusted earnings are expected to shrink to $0.55 per share. However, the semiconductor giant may be able to turn in a better-than-expected performance this year itself for a few reasons.
First, the decline in the PC market in 2023 isn't expected to be as severe as last year. Gartner estimates that PC shipments could drop 6.8% this year following 2022's drop of 16%. The research firm also adds that PC inventories could start returning to normal levels in the second half, which should pave the way for an improvement in processor sales.
A turnaround in PC sales later this year could be a tailwind for Intel, given its dominance in this space. The company exited 2022 with 81% of the desktop CPU market under its control, while its share of mobile CPUs stood at 83.6%. It is worth noting that Intel gained a healthy 5.1 percentage points of market share in mobile CPUs in the fourth quarter of 2022 as compared to the prior-year period.
Another reason to be hopeful about Intel this year is the launch of the company's Sapphire Rapids server processors. Originally slated for release in April 2021, the Sapphire Rapids processors have finally hit the market this year after four delays. The good part is that these processors seem to be gaining popularity already.
Nvidia, for instance, will develop systems using the Sapphire Rapids processors, while Cisco has also tapped Intel's latest offering for its server systems. As a result, there is a possibility of Intel being able to ward off AMD's growing dominance in the server market this year, and that could play an important role in helping the company deliver better-than-expected results.
The verdict
We have already seen that Intel's revenue and earnings are expected to decline substantially in 2023. AMD's revenue, on the other hand, is expected to remain flat, while adjusted earnings could decline 13% to $3.05 per share.
Given that AMD is trading at just 26 times forward earnings as compared to Intel's forward price-to-earnings ratio of 54, the former looks like a better tech stock for investors to buy right now, given the healthier state of its business and the market share gains that it is clocking.
