intel (INTC -0.51%) and Micron Technology (MU 1.33%) Both provide essential chips for modern computers and data centers. Intel is the world’s leading manufacturer of x86 CPUs for PCs and servers, and Micron is a leading supplier of DRAM and NAND memory chips. Both chipmakers manufacture most of their chips in their own foundries.
But over the past five years, Intel’s stock has fallen 55% while Micron’s stock has risen 137%. Let’s take a look at why Micron outperformed Intel by such a wide margin and whether Micron is still a better overall investment in the growing semiconductor sector.
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Intel is facing an existential crisis
Intel’s recent crisis was caused by three major failures.
It was unable to leverage its dominance in the PC and server markets to gain a foothold in the mobile chip market. Taiwan Semiconductor Manufacturing was unable to stay ahead of Taiwan Semiconductor Manufacturing in the process race to produce smaller, denser, and more power-efficient chips. We missed the seismic shift toward artificial intelligence (AI) accelerator chips.
As Intel struggled with product delays and chip shortages, many PC makers turned to Advanced Micro Devices and outsourced production to TSMC’s superior chip foundry. Instead of coming up with a clear turnaround strategy, Intel has undergone a surprising strategic shift under three different CEOs over the past six years.
Intel’s current CEO Pat Gelsinger initially believed the company could expand its foundry to catch up to TSMC by 2025, but the yields of its latest 18A chips have been dismal. This indicates that the goal will not be achieved to a large extent. Earlier this year, Intel laid off 15% of its employees and suspended its dividend. The company is also reportedly considering a spinoff or sale of its foundry division, which would raise a significant amount of cash but completely upend Gelsinger’s original plans.
For now, Intel is ramping up production of low-margin “AI CPUs” (which add AI processing capabilities to chips) to maintain its edge in the AI race, pushing AMD in the x86 CPU market. I’m struggling to stop it. However, these chips still can’t handle AI tasks as fast as Nvidia’s standalone GPUs.
Micron is restarting its cyclical growth engine
Micron is not the world’s largest maker of DRAM and NAND chips, but it develops chips with higher densities than its larger competitors. Its technological advantages have made the company the preferred memory chip supplier for high-end PCs, servers, and other devices.
Micron’s business is more cyclical than Intel’s. The memory chip market generally goes through boom and bust cycles. The most recent collapse occurred in 2023. That’s because PC shipments have stalled, smartphones’ 5G upgrade cycles have ended, and many data centers prioritized purchasing AI-oriented GPUs over new memory chips.
However, this year, the PC and smartphone markets stabilized and a new growth cycle began. The data center also purchased more solid-state drives (SSDs) and high-bandwidth memory (HBM) chips to support the demanding needs of new AI applications. Micron expects the long-term expansion of the AI market to drive the company’s long-term growth.
Micron faces competitive pressure from major chip makers like Samsung and SK Hynix. China also banned Micron chips from infrastructure projects last year, and China could face further headwinds if the U.S.-China tech war escalates. But Micron hasn’t faced the same existential challenges as Intel and has been steadily led by the same CEO, Sanjay Mehrotra, for the past seven years.
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Intel’s revenue fell 14% in 2023, and adjusted earnings per share (EPS) fell 37%, marking the second consecutive year of revenue declines. Analysts expect the company’s revenue and adjusted EPS to decline by 4% and 75%, respectively, in 2024. Based on these estimates, the company’s stock price remains unchanged, although it may fluctuate based on Intel’s possible sale of its foundry business and non-core businesses. At 22 times expected earnings, it looks like a great deal.
In fiscal 2023 (ending last August), Micron’s revenue fell 49% and it posted an adjusted net loss due to memory market burnout. However, in fiscal 2024, the company returned to the black, with sales increasing by 62%.
For fiscal 2025, analysts expect the company’s revenue and adjusted EPS to increase by 52% and 585%, respectively, as a new growth cycle begins. The company’s growth will inevitably slow again as the recovery slows, but the stock currently looks very cheap at a forward P/E ratio of 12x.
Based on these facts, I think Micron is a better buy than Intel for the foreseeable future. While Micron is still in the early stages of a new growth cycle, Intel faces a major crisis that could ultimately derail its entire business.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
