The COVID-19 pandemic has accelerated digital transformation as more people are working from home and even education has moved online. The new normal has been favorable for many tech companies as the demand for PCs, laptops and other peripheral accessories has increased.
Chip companies like Micron Technology, Qualcomm, NVIDIA, AMD and Intel are experiencing higher demand from OEMs (original equipment manufacturers) like personal computer manufacturers and gaming console makers. They are also seeing robust sales of chips to data centers.
Using the TipRanks’ Stock Comparison tool, we will place Intel and AMD alongside each other to see which stock offers the most compelling investment opportunity.
Intel, once a dominant chipmaker, now lags rivals who aggressively advanced on the technology curve. The company’s recent announcement that its 7-nanometer chip rollout is delayed to at least late 2022 didn’t go down well with its investors. The delay strengthens AMD’s position against Intel as it already sells 7-nanometer chips.
The delay also shadowed Intel’s better-than-anticipated performance in the second quarter. Intel’s second-quarter revenue grew 19.5% Y/Y to $19.7 billion as data-centric revenue jumped 34% while PC-centric revenue rose 7%. The company’s adjusted EPS increased 16% to $1.23.
The company cited “continued strong demand for computing performance to support cloud-delivered services, a work- and learn-at-home environment, and the build-out of 5G networks,” as the reasons for a strong quarter.
Intel manufacturers its chips in-house in contrast to AMD which relies on Taiwan Semiconductor Manufacturing Co. Intel is now evaluating the outsourcing of chip manufacturing. (See INTC stock analysis on TipRanks)
On August 17, Merrill Lynch analyst Vivek Arya lowered his price target for Intel stock to $62 from $55 while maintaining a Hold rating. The five-star analyst explained that despite positive trends in cloud, artificial intelligence, 5G, autonomous cars and the internet of things, Intel stock is likely to remain range-bound until the company sorts out its operating model.
Arya also cautioned that indecision around manufacturing for 2022 and beyond might cause customers to shift to AMD. He also expressed concern about the challenges that Intel faces in outsourcing to third-party foundries.
Intel certainly needs to address manufacturing issues and avoid execution delays. In July, it announced the departure of its chief engineering officer Murthy Renduchintala as part of its efforts to address process technology execution. The company has now divided its Technology, Systems Architecture and Client Group into five units as part of its streamlining efforts.
Unlike stocks of peers like NVIDIA and AMD, which have seen strong year-to-date rise, Intel stock has fallen about 19% so far in 2020 (as of August 18).
Wall Street’s Hold consensus for Intel stock breaks down into 8 Buys, 14 Holds, and 9 Sells. However, an average price target of $57.08 indicates a possible upside of 17.33% over the next 12-months.
Advanced Micro Devices (AMD)
After struggling for years, AMD re-emerged as a leading chip company due to the strategic efforts of CEO Lisa Su. Even before COVID-19, AMD was predicting strong growth in its business, particularly in the data-center space. The pandemic has further boosted the demand for chips to support data centers and cloud services.
Its second-quarter revenue grew 26% Y/Y to $1.93 billion driven by higher demand for the company’s servers and mobile processors. Revenue from Ryzen and EPYC server processors more than doubled in the quarter. The company’s EPS surged 125% Y/Y to $0.18.
At the same time, AMD highlighted that it has met its goal of capturing a double-digit server processor market share with its data center chips accounting for 20% of the second-quarter revenue.
Plus AMD sees continued momentum in its business and predicts a 32% revenue growth in 2020 compared to its previous forecast of 25%. Continued growth in the PC market and demand for semi-custom products to support the launch of new PlayStation 5 and Xbox Series X consoles are expected to drive the top-line growth.
Moreover, later this year Microsoft and Sony are slated to launch new products, which will use AMD components. Continued demand for data center products will help in enhancing the company’s market share.
On August 10, Jefferies analyst Mark Lipacis reaffirmed his Buy rating with a $95 price target and commented “As the transistor gap between INTC and AMD extends, we expect AMD share gains, particularly in the server market, to accelerate from 50-100 bps/qtr they have seen over the past two years, to 100-200 bps per quarter going forward, and at a higher rate as the transistor gap between TSMC [Taiwan Semiconductor Manufacturing Company]/AMD and INTC widens.”
He added, “As it does, we think that the bull case for AMD, which is based largely on AMD capturing 30% share from INTC over the next 2-to-3 years, will morph to a 50% market share bull case 4-to-5 years out.”
Growing demand and the company’s strong outlook have helped AMD stock to rise 78% year-to-date so far. But this means that the average 12-month price target of $80.09 suggests a possible downside of 1.92% for the coming months.
Intel stock might look attractive to some investors based on its lower valuation and the upside potential in the stock. However, AMD, which is a smaller company, has huge growth prospects and has emerged as a key rival for Intel in the CPU (Central Processing Unit) market and for NVIDIA in the GPU (Graphics Processing Unit) space.
AMD looks to be a better long-term choice based on the Street’s consensus rating.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment