Best Semiconductor Stocks to Buy: Intel Stock vs. AMD Stock

SUMMARY

Parkev Tatevosian, CFA, compares Intel and AMD, analyzing their revenue growth, profitability, business models, and valuations. The discussion highlights AMD's asset-light approach and competitive positioning versus Intel's scale and recent growth efforts.

MAIN POINTS

• Intel has higher revenue than AMD, but AMD's revenue growth trend has been stronger over the past decade. [0:00]
• Both companies experienced a post-pandemic sales decline due to market saturation in consumer electronics, but data center demand has driven a recent recovery. [2:03]
• Intel's profitability is expected to improve as it increases capacity utilization, while AMD's asset-light model leads to a variable cost structure. [4:01]
• AMD is projected to achieve higher returns on invested capital over the long term due to its business model, while Intel's returns should rise with better asset utilization. [5:01]
• Both stocks are trading above estimated fair value and have high forward price-to-earnings ratios, reflecting market optimism about future growth. [6:00]
• The final assessment favors AMD for its competitive advantages in GPUs and CPUs and its asset-light business model. [7:01]

DETAILED ANALYSIS

Intel and AMD are leading players in the semiconductor sector, each showing strong revenue and profit growth in recent years. Intel maintains a larger scale, with revenue surpassing $57 billion, while AMD's revenue, now at $37.5 billion, has demonstrated a more consistent upward trajectory over the past decade. AMD's growth is largely attributed to its expanding presence in server CPUs and GPUs, especially as hyperscalers invest heavily in data center infrastructure.

In contrast, Intel has only recently begun to regain momentum, primarily through its CPU offerings and by signing new clients for its foundry business, though it still faces challenges in increasing capacity utilization.

The pandemic period initially boosted both companies due to heightened demand for consumer electronics, but this led to market saturation and a subsequent sales decline in 2022 and 2023. However, the surge in data center investments has revitalized profitability for both. AMD's operating profit margin has edged ahead of Intel's, reaching 11.75% compared to Intel's 8.03%, though Intel's margin is expected to improve as it leverages its existing fixed assets more efficiently.

AMD's asset-light model results in a variable cost structure, meaning its profitability grows more gradually with increased sales, whereas Intel's fixed-cost base allows for sharper improvements as utilization rises.

When evaluating returns on invested capital, AMD stands out with a current ROIC of 7.56%, and its long-term prospects are bolstered by multi-year contracts with major cloud providers. Intel's returns are also set to improve as it better utilizes its substantial capital investments. On valuation, both companies are considered expensive relative to their earnings and intrinsic value estimates.

Intel trades at a forward P/E of 48.6 and AMD at 32.5, both exceeding Nvidia's sub-20 ratio. Additionally, market prices for both exceed the analyst's fair value calculations, indicating significant investor optimism about future growth prospects. Ultimately, AMD is favored for its proprietary technology, strong positioning in CPUs and GPUs, and efficient asset-light business model, which together provide a competitive edge over Intel's more capital-intensive approach.

LINKS

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