Advanced Micro Devices (AMD -8.91%) and Intel (INTC -0.33%) have been beneficiaries of the solid surge in semiconductor stocks this year despite both companies being hamstrung by weak sales of personal computers (PCs).
While AMD stock is up an impressive 88% in 2023, Intel isn't far behind, with a 66% jump so far this year. Both stocks outperformed the PHLX Semiconductor Sector index's gains of 48% this year. But if you are thinking of buying one of these semiconductor stocks right now, which one should you put your money on? Let's find out.
The case for AMD
There are two solid reasons why investors may want to load up on AMD stock right now: a turnaround in the PC market and the potential growth of the company's data center GPU (graphics processing unit) business thanks to artificial intelligence (AI).
The company's revenue from sales of central processing units (CPUs), which are deployed in desktops and laptops, increased an impressive 42% year over year to $1.5 billion in the third quarter. This segment produced 26% of AMD's top line, and the good part is that it could continue driving solid growth for the company thanks to its growing share in this market.
According to Mercury Research, AMD's share of the client CPU market increased to 19.4% in the third quarter of 2023 from 15% in the year-ago period. Intel controlled the rest of the market, but the latest market share numbers suggest that AMD is chipping away at Chipzilla's dominant position in this space. Another reason why AMD could continue to take more share away from Intel in the CPU market is because the former is now tapping the nascent market for AI-powered PCs.
AMD already has more than 50 notebook designs in the market that are powered by its AI-enabled Ryzen processors. Counterpoint Research projects that sales of AI-powered PCs could increase at an annual rate of 50% through the end of the decade, and AMD's early-mover advantage in this space could give it a leg up over Intel and potentially lead to more market share gains.
Meanwhile, AMD has started gaining ground in the AI accelerator market that's currently dominated by Nvidia. The company expects its revenue from sales of data center GPUs, which are deployed in AI servers, to cross $2 billion in 2024. However, AMD's data center revenue could turn out to be much higher than that, as recent supply chain reports suggest.
All this indicates why analysts forecast solid bottom-line growth from AMD over the next couple of years, which could help the stock sustain its impressive momentum on the market.
AMD EPS Estimates for Current Fiscal Year data by YCharts.
The case for Intel
Just like AMD, Intel is also benefiting from improving conditions in the PC market. This was evident from the company's guidance for the fourth quarter of 2023, which calls for $15.1 billion in revenue at the midpoint. Intel reported $14 billion in revenue in the same period last year, so its top line is on track to increase in the high single digits.
More importantly, Intel sees its adjusted earnings landing at $0.44 per share in the current quarter. That would be a significant increase over the $0.10 per share in earnings the company reported in the year-ago quarter. We have already seen that Intel is the dominant player in the PC processor market, even though it has lost some ground to AMD of late. This puts Intel in a nice position to capitalize on the PC market's recovery.
According to IDC, the PC market could clock 3.7% growth in 2024, which would be a big improvement over this year's estimated decline of almost 14%. Moreover, just like AMD, Intel's AI chips have started gaining traction as well. Chipzilla has reportedly built a potential revenue pipeline worth $2 billion for its AI accelerators.
The above catalysts explain why Intel is anticipated to deliver robust earnings growth in 2024 and 2025.
INTC EPS Estimates for Current Fiscal Year data by YCharts.
Intel has set its sights on the market for AI inference chips. So, it won't be surprising to see the company delivering the robust earnings growth that analysts are anticipating, as the demand for these inference chips is expected to be greater than the accelerators that the likes of Nvidia and AMD are selling.
General computing chips, such as server CPUs, are expected to account for 60% of the AI chip market by 2027, as per Intel's estimates, creating a $40 billion revenue opportunity for the company. With Intel controlling 77% of the server CPU market (AMD controls the remaining 23%), it can make the most of this lucrative end-market opportunity on offer.
So, the semiconductor bellwether seems to be in a similar position to AMD on account of the catalysts that could power its growth in 2024 and beyond. However, a closer look will tell us that one of these companies has an edge over the other that may have a bearing on which stock investors buy.
Intel is the winner in this competition
Both Intel and AMD are on the verge of a turnaround thanks to the identical markets in which they operate. However, AMD's stronger gains this year have made the stock expensive, with its price-to-sales ratio rising to 8.8 from 4.2 at the end of last year. Intel, on the other hand, trades at a relatively cheaper 3.4 times sales.
As far as 2024 is concerned, analysts anticipate a 13% jump in Intel's revenue to $56 billion. AMD's top line, for comparison, is expected to increase by 16% to $24 billion. This is where Intel's cheaper valuation comes in handy, as its growth is expected to be similar to AMD's next year, which is why investors looking for a growth stock trading at an affordable multiple may want to buy Intel before it surges higher.
