Intel Corporation (INTC) in Santa Clara, Calif., designs, manufactures, and sells essential technologies for the cloud, smart, and connected devices. Its segments include Data Center Group; Internet of Things Group; Mobileye; and Non-Volatile Memory Solutions Group. In comparison,  Advanced Micro Devices, Inc (AMD), which is also headquartered in Santa Clara, Calif., operates in two segments—Computing and Graphics; and Enterprise, Embedded, and Semi-Custom. Its products include x86 microprocessors, an accelerated processing unit, chipsets, discrete and integrated graphics processing units, data center and professional GPUs, and development services.

Since last year, the rising demand for semiconductor chips from several industries has created a huge supply/demand imbalance. The resulting increase in prices has been favorable for the semiconductor industry. While huge investments are helping semiconductor manufacturers increase production, the supply shortage may not end anytime soon.

The increasing need for advanced devices that feature a wide range of innovative technologies should keep the demand for semiconductors much higher than their supply for the foreseeable future. According to a Fortune Business Insights report, the global semiconductor market is projected to grow at an 8.6% CAGR between 2021 - 2028. Therefore, both INTC and AMD should benefit. Interestingly, these two stocks are among the top 15 most mentioned stocks on subreddit r/WallStreetBets.  AMD has gained 64.3% in price over the past year, while INTC has returned 11.5%. Also, AMD’s 48.7% gains year-to-date are significantly higher than INTC’s 2.2% returns. Furthermore, AMD is the clear winner with 75.2% gains versus INTC’s negative returns in terms of the past six months’ performance.

Click here to checkout our Semiconductor Industry Report for 2021

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On October 27, 2021, Intel unveiled the 12th Gen Intel Core processor family with its launch of  six new unlocked desktop processors that include the world’s best gaming processor, the 12th Gen Intel Core i9-12900K. The launch could lead to increased sales for the company.

On November 4, 2021, AMD announced its continued momentum and collaboration with Microsoft Azure, which is offering the 3rd Gen AMD EPYC processor in the latest generation of Dasv5 and Easv5 Azure Virtual Machines.

Recent Financial Results

For its fiscal third quarter, ended September 25, 2021, INTC’s non-GAAP revenue increased 5% year-over-year to $18.10 billion. The company’s non-GAAP net income came in at $7 billion, representing a 54% year-over-year increase. Also, its non-GAAP EPS was  $1.71, up 59% year-over-year.

AMD’s revenues increased 54% year-over-year to $4.31 billion for its  fiscal third quarter, ended September 25, 2021. The company’s non-GAAP net income was $893 million, representing a 78% year-over-year increase. Also, its non-GAAP EPS came in at $0.73, up 78% year-over-year.

Past and Expected Financial Performance

INTC’s revenue and EPS have grown at CAGRs of 4.3% and 17.3%, respectively, over the past three years. Analysts expect R’s revenue to decrease 8.3% for the quarter ending December 31, 2021, and 5.5% in its fiscal year 2021. The company’s EPS is expected to decline 40.8% for the quarter ending December 31, 2021, and 0.4% in its fiscal year 2021. However, its EPS is expected to grow at a 3.2% rate  per annum over the next five years.

In comparison, AMD’s revenue and EPS have grown at CAGRs of 32.4% and 129.6%, respectively, over the past three years. The company’s revenue is expected to increase 39.1% for the quarter ending December 31, 2021, and 65.2% in its fiscal year 2021. Its EPS is expected to grow 46.2% for the quarter ending December 31, 2021, and 104.7% in its fiscal year 2021. Also, AMD’s EPS is expected to grow at a 35.3% rate  per annum over the next five years.

Profitability

INTC’s trailing-12-month revenue is 5.28 times what AMD generates. INTC is also more profitable, with gross profit  and EBITDA margins of 56.27% and 44.25%, respectively, compared to AMD’s 46.82% and 23.05%.

However, AMD’s 72.14%, 20.93%, and 30.98% respective ROE, ROA, and ROTC are higher than INTC’s 25.63%, 9.18%, and 11.90%.

Valuation

In terms of forward non-GAAP P/E, AMD is currently trading at 51.81x, which is 438% higher than INTC’s 9.63x. And  AMD’s 38.47x forward EV/EBITDA ratio  is 499.2% higher than INTC’s 4.24x.

So, INTC is relatively affordable here.

POWR Ratings

INTC has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast,  AMD has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

INTC has an A grade for Value, which is consistent with its 9.63x forward non-GAAP P/E, which is 62% lower than the 25.31x industry average. However, AMD has a C grade for Value, which is in sync with its 51.81x forward non-GAAP P/E, which is  104.7% higher than the 25.31x industry average.

Moreover, INTC has a C grade for Stability, which is in sync with its 0.51 beta. In comparison, AMD has a D grade for Stability, in sync with its 2.01 beta.

Of the 101 stocks in the Semiconductor & Wireless Chip industry, INTC is ranked #9. In contrast, AMD is ranked #79.

Beyond what I have stated above, we have also rated the stocks for Momentum, Quality, Growth, and Sentiment. Click here to view all the INTC ratings. Also, get all the AMD ratings here.

The Winner

The semiconductor industry is expected to grow exponentially with increasing demand this year and beyond. While both INTC and AMD are expected to benefit, we think  INTC is a better investment now because of its lower valuation and better stability.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Semiconductor & Wireless Chip industry here.

Click here to checkout our Semiconductor Industry Report for 2021

INTC shares were trading at $51.54 per share on Monday afternoon, up $0.62 (+1.22%). Year-to-date, INTC has gained 6.76%, versus a 26.72% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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