AMD vs. Intel Stock: Better Semiconductor Turnaround Candidate

In the semiconductor world, many stocks demonstrated solid performances throughout 2024, but Intel (INTC) and Advanced Micro Devices (AMD) did not. Last year, Intel's shares dropped around 60%, while AMD experienced an 18% decline. With this backdrop, let's explore which of these semiconductor stocks could be the better candidate for a turnaround in 2025.

AI Afterthoughts

The semiconductor market is significantly influenced by artificial intelligence (AI) advancements. In this competitive landscape, both Intel and AMD have found themselves as secondary players. AMD is positioned as the second-largest designer of graphic processing units (GPUs), trailing behind the dominant force, Nvidia. On the flip side, Intel's GPU market share has dwindled to zero, slipping from a previous 2% in the PC graphics card segment back in 2023.

AMD faces challenges in competing with Nvidia, primarily due to deficiencies in its software. A recent analysis by SemiAnalysis labeled AMD's GPUs as "unusable" for AI training right out of the box, arguing that it required extensive involvement from AMD engineers to address software issues. However, AMD has successfully carved out a niche within AI inference, witnessing its GPUs being utilized for specific, well-defined inference tasks.

Despite the challenges against Nvidia, AMD has shown notable growth in its data center sector, albeit not on the same scale as Nvidia. Last quarter, AMD's data center revenue surged by 122% year over year, reaching $3.5 billion, with significant contributions from its Instinct GPUs and EPYC central processing units (CPUs).

While GPUs can be powerful, AMD has also made strides in the CPU market, gaining market share in both server and PC segments. Overall, AMD reported a revenue increase of 18% to $6.8 billion for Q3, along with a 31% jump in adjusted earnings per share (EPS) to $0.92. These figures indicate AMD's solid performance despite the recent decline in its stock price.

In contrast, Intel reported a 6% drop in revenue for the last quarter, landing at $13.3 billion, and its adjusted EPS turned negative, falling to -$0.46 from a profit of $0.41 the previous year. The only positive note for Intel was its data center and AI segment, with a modest 9% revenue increase to $3.3 billion when compared to its rivals.

In its primary business segment, Client Computing, Intel encountered a 7% revenue decline to $7.3 billion. For comparison, AMD's Client Computing segment revenue surged by 29% to $1.9 billion in the same quarter, suggesting that AMD is making notable inroads into Intel's core PC market.

Intel's serious challenges can be traced back to its Foundry segment, which has continuously hindered its financial performance. Despite substantial investments in building manufacturing facilities, this sector has consistently reported considerable losses, including an operating loss of $5.8 billion last quarter (or $2.7 billion, excluding a noncash impairment charge).

Sparked by leadership changes, including the exit of CEO Pat Gelsinger, Intel has indicated a potential spinoff of its foundry division. Recently, this business segment garnered $7.86 billion in direct government funding and a 25% investment tax credit to refine its manufacturing capabilities within the U.S.

Valuations and Verdict

From a valuation standpoint, Intel appears to be the more affordable option, trading at a forward price-to-earnings (P/E) ratio of 12.6, compared to AMD's 17.6. However, when considering Intel's core business separately from its struggling foundry segment, it becomes an even more appealing investment.

Intel's foundry operations, while unprofitable, possess significant physical assets. Since 2021, the company has invested $68.5 billion in capital expenditures primarily for its foundry business, and it boasts $104 billion in tangible assets. When adjusting for its debt of $26 billion, the assets associated with Intel's foundry could translate to approximately $10 per share based on its 4.3 billion shares outstanding. Furthermore, owning an 88% stake in Mobileye, valued at about $11.4 billion, translates to an additional $2.66 per Intel share.

Given these dynamics, it's not surprising that speculation around potential acquisition of Intel has circulated, as many hidden physical assets remain unreflected in its market valuation, alongside government support.

While AMD may represent the stronger operational performance of the two, it has not always garnered the respect it deserves from investors. If AI infrastructure continues to pivot toward inference applications, AMD could find itself well positioned. Additionally, investors should acknowledge AMD's successful strides within the CPU market, capturing share in data centers and PCs.

Both companies serve as promising turnaround candidates for the upcoming year. Personally, I favor Intel slightly more due to its hidden value potential. However, AMD also stands out as a robust option for recovery. Investors can consider including both stocks in their portfolios to diversify their potential recovery bets.

Stocks, Semiconductors, Investment