AMD vs. Intel Stock: Who Has the Better Chance for a Turnaround?

In 2024, many chip stocks experienced strong performances, but Intel (NASDAQ: INTC) and Advanced Micro Devices (NASDAQ: AMD) did not share in this success. Intel's stock plummeted by around 60% last year, while AMD saw a decrease of about 18%.

This article will explore which of these semiconductor stocks appears to be the better candidate for a rebound in 2025.

AI Landscape Challenges

The semiconductor sector is increasingly influenced by advancements in artificial intelligence (AI), and unfortunately, Intel and AMD have been overshadowed in this area. AMD is currently the second-largest producer of graphic processing units (GPUs) but lags significantly behind Nvidia, the market leader. In 2023, Intel's presence in the GPU market effectively reached a standstill with a mere 2% market share in PC graphics cards.

AMD has faced tough competition from Nvidia, mostly because of its less effective software solutions. A study from SemiAnalysis described AMD's GPUs right out of the box as "unusable" for AI training, indicating that multiple teams of engineers were necessary to resolve software issues. However, AMD has successfully established a niche in AI inference, as reported by SemiAnalysis, where its GPUs are being used for specific, well-defined tasks.

Despite these challenges, AMD has enjoyed notable growth in its data center division, although it doesn't match the rapid expansion seen by Nvidia. Last quarter, AMD reported a remarkable 122% year-over-year increase in data center revenue, reaching $3.5 billion. This surge was attributed to strong sales of its Instinct GPUs and EPYC central processing units (CPUs).

While GPUs typically grab attention due to their advanced capabilities, AMD is also making strides in the CPU market. The company is gaining market share in the CPU server segment and continues to perform well within the PC sector.

Overall, AMD's Q3 revenue rose 18% to $6.8 billion, with adjusted earnings per share (EPS) climbing 31% to $0.92. Therefore, the firm has continued to grow effectively, despite the downturn in its stock valuation.

In contrast, Intel experienced a revenue decline of 6% last quarter, totaling $13.3 billion, and reported an adjusted EPS loss of -$0.46 compared to a gain of $0.41 the previous year. The sole bright spot was its data center and AI division, which saw modest growth of 9%, reaching $3.3 billion. However, when placed alongside Nvidia and AMD, this growth appears minimal.

Intel's largest division, Client Computing, also faced challenges, experiencing a 7% revenue decrease to $7.3 billion. Comparatively, AMD's Client segment revenue surged 29% last quarter, producing $1.9 billion, suggesting that AMD is successfully encroaching upon Intel's core PC business.

Intel's main challenge may stem from its Foundry division, which has become a significant financial burden. The company has invested heavily in this area, building new manufacturing facilities. However, this division has consistently reported significant losses, including an operating loss of $5.8 billion last quarter (or $2.7 billion excluding noncash impairment charges).

Following the departure of CEO Pat Gelsinger, Intel has hinted at the possibility of spinning off its foundry division. Recently, the segment received $7.86 billion in funding and a 25% investment tax credit from the government to support its manufacturing initiatives.

Comparing Valuations

When looking at valuations, Intel appears cheaper, with a forward price-to-earnings ratio (P/E) of 12.6, compared to AMD’s 17.6.

However, if you analyze Intel's core business separately from its foundry operations, the valuation becomes even more attractive. Although the foundry has been a money-loser, it holds significant physical assets. Since the end of 2021, Intel has invested $68.5 billion in capital expenditures, primarily in the foundry division, and it boasts $104 billion in physical assets on its balance sheet. Subtracting its $26 billion in net debt from its recent capital spending suggests a valuation of around $10 per share solely for the foundry business. Additionally, Intel's 88% stake in Mobileye is valued at about $11.4 billion, translating to approximately $2.66 per Intel share.

This hidden value in assets and government support helps explain the takeover rumors surrounding Intel. Much of the company’s intrinsic value remains unreflected in its stock price.

Though AMD has shown stronger overall performance, it hasn't received the investor appreciation it might warrant. Should there be a shift towards greater AI inference infrastructure, AMD might significantly benefit. The company's CPU segment also cannot be overlooked, as it continues to gain traction in both data centers and the PC market.

In conclusion, both stocks present potential turnaround opportunities this year. While I slightly favor Intel for its underlying value, AMD also appears to be a capable rebound candidate. Fortunately, investors have the flexibility to invest in both stocks to diversify their portfolios.

Disclaimer: The author has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool advises various options related to Intel.

AMD, Intel, Stocks