Intel (INTC -9.20%) and Taiwan Semiconductor Manufacturing (TSM 1.26%) are two of the world's largest chipmakers, yet their stocks have gone in opposite directions over the past month. Intel's stock has declined 13%, while TSMC's shares have advanced 13%.
Both of these stocks made big moves after their latest earnings reports in January. Intel's shares sank after it provided gloomy guidance for the first quarter, yet TSMC's stock rallied after it provided a much brighter outlook for the same period. Let's see why these two stocks diverged -- and whether TSMC will continue to outperform Intel in 2024.
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The similarities and differences
Intel and TSMC are two of the world's most advanced chipmakers, but their business models are very different. Intel is an integrated device manufacturer (IDM) that designs, produces, and markets its own chips. It's the world's largest producer of x86 CPUs for PCs and data centers, and it produces those chips at its own foundries.
TSMC is a contract chipmaker that doesn't sell any of its own in-house chip designs. It only manufactures chips for fabless chipmakers like Apple, AMD (AMD 2.37%), and Nvidia. TSMC produces the world's smallest, densest, and most power-efficient chips, and it's currently one to two generations ahead of Intel's foundries in the "process race" to manufacture smaller chips. AMD's usage of TSMC's foundries notably helped it pull ahead of Intel with more advanced CPUs.
To narrow that technological gap, Intel has been upgrading and expanding its own foundries in a desperate bid to catch up to TSMC over the next few years. Intel also plans to challenge TSMC in the contract chipmaking space by opening up its foundries to fabless chipmakers, but that nascent segment only accounted for 2% of its revenue in its latest quarter. It's too early to call Intel's foundry business a game-changer.
Intel generates most of its revenue from its PC and data center CPUs, while TSMC mainly depends on the smartphone and high-performance computing (HPC) markets. As a result, Intel suffered a tougher slowdown than TSMC as PC shipments declined in a post-pandemic market, but its data center sales also slumped because its CPUs weren't as essential as Nvidia's HPC GPUs for processing AI tasks. Meanwhile, TSMC benefited from the AI boom because it manufactured Nvidia's GPUs.
Which chipmaker is growing faster?
Intel and TSMC both struggled in 2023. Intel's revenue and adjusted EPS dropped 14% and 37%, respectively, as its sales of PC and data center CPUs withered. Its PC chip sales finally grew again in the fourth quarter of the year, buoyed by the broader stabilization of the PC market, but its data center business remains weak.
But in 2024, analysts expect Intel's revenue and adjusted EPS to grow 12% and 77%, respectively, as its PC and data center businesses gradually recover in a more stable macro environment. However, Intel's latest guidance suggests that recovery won't actually kick in until the second half of the year, so analysts might gradually rein in those full-year forecasts. That's an uncertain outlook for a stock that already trades at 24 times forward earnings.
TSMC's 2023 revenue and EPS declined 9% and 21%, respectively, in U.S. dollar terms. That slowdown was caused by the end of the 5G upgrade cycle in smartphones, the PC market's sluggish growth, and macro headwinds for data center chips.
For 2024, TSMC expects its revenue to increase more than 20% in dollar terms as it ramps up the production of its latest 3-nanometer chips, continues to sell more 5nm chips and benefits from the "robust" expansion of the AI market. Intel won't start mass producing its 1.8nm chips (which are only roughly comparable to TSMC's 3nm chips) until 2025.
Analysts expect TSMC's revenue and EPS to grow 23% and 11%, respectively, in 2024. At 18 times forward earnings, its stock appears fairly cheap relative to those estimates.
TSMC is still the better buy
Intel remains in the midst of a painful turnaround, and it could continue to struggle as AMD chips away at its shrinking share of the PC market and TSMC retains its lead in the process race. Intel might eventually get its act together, but investors should stick with more reliable chipmakers like TSMC, which is still cheaper and better diversified, and also has a much wider moat.
