Intel Corporation (INTC) and Advanced Micro Devices, Inc. (AMD) are two prominent players in the semiconductor chip industry. Santa Clara, Calif.-based INTC designs, manufactures, and sells computer products and technologies that deliver networking, data storage, and communication platforms. The company also provides IoT products, computer vision, machine learning-based sensing, data analysis, localization, mapping, and driving policy technology. In comparison, AMD, which is also headquartered in Santa Clara, offers microprocessors, chipsets, GPUs, server and embedded processors, semi-custom System-on-Chip (SoC) products, technology for game consoles, and provides assembly, testing, and packaging services.
With favorable government policies and substantial corporate investments, global semiconductor industry sales increased 24% year-over-year to $49.7 billion in November 2021. Various measures taken to address the semiconductor chip shortage should enable the industry to increase production levels this year. This, along with impressive breakthroughs in the chip manufacturing process, make the industry’s long-term prospects bright. Growing investor optimism in this space is evident in the SPDR S&P Semiconductor ETF’s (XSD) 13.9% gains over the past nine months versus the SPDR S&P 500 Trust ETF’s (SPY) 6.8% returns. The global semiconductor chips market is expected to grow at a 7.8% CAGR and reach $553.60 billion by 2026. So, both INTC and AMD should benefit.
But while INTC stock has declined 15.7% in price over the past nine months, AMD surged 52.9%. AMD is also a clear winner with 6.7% gains versus INTC’s negative returns over the past six months. But which of these stocks is a better pick now? Let’s find out.
Click here to checkout our Semiconductor Industry Report for 2022
Latest Developments
On Jan. 21, 2022, INTC announced plans to invest more than $20 billion in constructing two new leading-edge chip factories. The investment should help boost production to meet the surging demand for advanced semiconductors, power INTC’s new generation of innovative products and serve the needs of foundry customers as part of the company’s IDM 2.0 strategy.
On Jan.19, 2022, AMD announced new additions to the AMD Radeon PRO W6000 Series desktop and mobile workstation graphics lineup. The additions are designed to deliver exceptional performance, stability, and reliability for professional users. Built on advanced 6nm manufacturing process technology, with 16MB of high-bandwidth, low-latency AMD Infinity Cache memory technology acting as a bandwidth amplifier, the lineup should witness widespread recognition across the industry.
Recent Financial Results
INTC’s non-GAAP net revenue for its fiscal 2021 fourth quarter, ended Dec. 25, 2021, increased 3.5% year-over-year to $19.53 billion. The company’s non-GAAP gross profit came in at $10.83 billion, down 4.4% from the prior-year period. Its non-GAAP operating income was $5.05 billion, indicating a 17.5% year-over-year decline. INTC’s non-GAAP net income came in at $4.45 billion for the quarter, representing a 26.9% decline from the year-ago period. Its non-GAAP EPS came in at $1.09, down 26.4% from the prior-year period. The company had $4.83 billion in cash and equivalents as of Dec. 25, 2021.
For its fiscal 2021 fourth quarter, ended Dec. 25, 2021, AMD’s revenue increased 48.8% year-over-year to $4.83 billion. The company’s non-GAAP gross profit came in at $2.43 billion for the quarter, up 67.2% from the prior-year period. Its non-GAAP operating income came in at $1.33 billion, indicating a 100.3% rise from the year-ago period. AMD’s non-GAAP net income came in at $1.12 billion, representing a 76.4% year-over-year improvement. And its non-GAAP EPS increased 76.9% year-over-year to $0.92. The company had $2.54 billion in cash and equivalents as of Dec. 25, 2021.
Past and Expected Financial Performance
INTC’s tangible book value and total assets have increased at CAGRs of 17% and 9.6%, respectively, over the past three years. The company’s revenue has grown at 3.7% CAGR over the past three years.
Analysts expect INTC’s EPS to rise 5.4% year-over-year in its fiscal 2023, ended Dec. 31, 2023. Its revenue is expected to grow 2.8% year-over-year in fiscal 2023. The company’s EPS is expected to increase at a 3.4% rate per annum over the next five years.
In comparison, AMD’s tangible book value and total assets have grown at CAGRs of 112.5% and 39.7%, respectively, over the past three years. The company’s revenue has grown at 36.4% CAGR over the past three years.
AMD’s EPS is expected to grow 17.8% year-over-year in its fiscal year 2023, ending Dec. 31, 2023. Its revenue is expected to grow 12.5% year-over-year in fiscal 2023. Analysts expect the company’s EPS to increase at a 34.4% rate per annum over the next five years.
Valuation
In terms of forward EV/Sales, AMD is currently trading at 6.76x, which is 142.3% higher than INTC’s 2.79x. In terms of forward EV/EBITDA, INTC’s 7.06x compares with AMD’s 23.13x.
Profitability
INTC’s trailing-12-month revenue is almost 4.8 times AMD’s. INTC is also more profitable, with a 42.9% EBITDA margin versus AMD’s 24.5%.
Furthermore, INTC’s gross profit margin and net income margin of 55.5% and 25.1%, respectively, compare favorably with AMD’s 48.3% and 19.2%.
POWR Ratings
While INTC has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, AMD has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each weighted to an optimal degree.
Both INTC and AMD have a B grade for Quality, which is consistent with their higher-than-industry profitability ratios. INTC’s 25.1% trailing-12-month net income margin is 286.8% higher than the 6.5% industry average. AMD has a 19.2% trailing-12-month net income margin, which is 196% higher than the 6.5% industry average.
INTC has an A grade for Value, which is in sync with its lower-than-industry valuations. It has a 7.06x forward EV/EBITDA, which is 52.7% lower than the 14.92x industry average. AMD’s C grade for Value reflects its higher-than-industry valuation multiples. Its 23.13x forward EV/EBITDA is 55% higher than the 14.92x industry average.
Among the 100 stocks in the A-rated Semiconductor & Wireless Chip industry, INTC is ranked #16, AMD is ranked #68.
Beyond what we have stated above, our POWR Ratings system has also rated INTC and AMD for Growth, Sentiment, Momentum, and Stability. Get all INTC ratings here. Also, click here to see the additional POWR Ratings for AMD.
The Winner
Based on the latest developments and sound financials, both INTC and AMD are well-positioned to benefit from rising government and corporate investments in the semiconductor chip industry. However, its higher profitability and lower valuation we think make INTC a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2022
INTC shares were trading at $48.07 per share on Friday afternoon, down $0.21 (-0.43%). Year-to-date, INTC has declined -6.66%, versus a -4.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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