While several chip stocks performed convincingly in 2024, Intel (INTC -3.43%) and advanced microdevices (AMD -0.16%) He wasn’t among them. Last year, Intel stock fell about 60%, and AMD stock fell about 18%.
Find out which semiconductor stocks are likely to be better rebound candidates in 2025.
AI’s idea
In a semiconductor market largely driven by artificial intelligence (AI), Intel and AMD have largely been left on the back burner. AMD is the second-largest designer of graphics processing units (GPUs) behind market leader Nvidia. Meanwhile, Intel’s GPU market share has fallen to zero, although it wasn’t a huge drop, and its PC graphics card market share in 2023 will be just 2%.
AMD is having a tough time against Nvidia, and the main reason for this is poor software. In a recent study, Semianalysis said AMD’s off-the-shelf GPUs are “unusable” for AI training and noted that “multiple teams of AMD engineers” are needed to fix software bugs. But AMD has managed to carve out a niche in AI inference, and SemiAnarise says its customers typically use AMD’s GPUs for narrow and well-defined inference use cases.
Despite this, AMD is experiencing strong data center growth, if not nearly as large as Nvidia. Last quarter, data center revenue reached $3.5 billion, up 122% year over year and 25% sequentially. The company attributes the sales increase to both its Instinct GPUs and EPYC central processing units (CPUs).
The CPU acts as the brain of the computer, and the GPU provides superior processing power. While GPUs are getting all the attention they deserve, AMD is making strong strides in the CPU market, noting that it’s doing well in the PC market as well as gaining share in the CPU server market.
Overall, AMD’s third quarter revenue increased 18% to $6.8 billion and adjusted EPS increased 31% to $0.92. Therefore, the company is still growing well despite the decline in its stock price.
Meanwhile, Intel’s revenue fell 6% last quarter to $13.3 billion, and its adjusted EPS fell from a profit of $0.41 a year ago to a loss of -$0.46. The only bright spot last quarter was its data center and AI division, where sales rose 9% to $3.3 billion. However, compared to Nvidia and AMD, the profits in this segment are very small.
Meanwhile, revenue in Client Computing, its largest division, fell 7% to $7.3 billion. By comparison, AMD’s client revenue rose 29% to $1.9 billion last quarter, giving it some inroads into Intel’s core PC business.
But perhaps Intel’s biggest problem stems from its foundry division, which has been a major drag on its performance. The company injected capital into the business through capital expenditures (Capex) and built a new manufacturing facility. However, the division has been consistently losing money, reporting an operating loss of $5.8 billion last quarter, and an operating loss of $2.7 billion excluding non-cash impairment charges. There is.
Following the departure of CEO Pat Gelsinger, Intel said it may consider spinning off its foundry business. The company recently received $7.86 billion in direct funding and a 25% investment tax credit from the government to continue expanding its manufacturing footprint in the United States.
Rating and verdict
From a valuation perspective, Intel is a cheaper stock, trading at 12.6 times forward price-earnings (P/E), compared to 17.6 times AMD.
INTC PE Ratio (Forward 1y) data by YCharts.
But when you evaluate Intel’s core and foundry businesses separately, the valuation becomes even more attractive.
Intel’s foundry business is losing money, but it also has a lot of physical assets. Intel has spent $68.5 billion in capital spending since the end of 2021, primarily in its foundry business, and has $104 billion in physical assets on its balance sheet. Taking only recent capital expenditures and subtracting the $26 billion in net debt, the company’s foundry business would be worth 4.3 billion shares at about $10 a share. The company also owns 88% of Mobileye’s stock, valued at about $11.4 billion ($2.66 per Intel share).
So it’s no surprise that the company has become the subject of takeover rumors. In addition to direct government funds and tax incentives, there are also many hidden physical assets that are not reflected in stock prices.
AMD, on the other hand, is certainly the stronger of the two businesses, even if it doesn’t get the recognition it deserves from investors. It could be a good thing if more AI infrastructure is directed towards AI inference. Meanwhile, investors shouldn’t overlook the company’s CPU business, which is gaining market share in both data centers and PCs.
I like both stocks as candidates for recovery this year. I like Intel a little better. Because I think there’s still great value in the stock. However, AMD also looks like a solid rebound candidate. Fortunately, investors don’t have to choose and can add both stocks to their portfolio if they wish.
