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Intel and AMD are two of the most popular semiconductor stocks right now. Revenue is growing, profits are soaring, and their prospects for the next few years look great. But which of these two stocks is the better one to buy? Comparing them, which one would I rather invest in? Let's do this experiment.
I'm interested in finding out. Follow me. Let's see. . The first thing I want to compare them with is revenue. Looking at this graph of revenue over the decade, we see a few things. First, Intel has higher revenue than AMD . This is a larger scale business. Second, AMD has a better growth trend over the previous decade.
It has been growing almost all the time, while Intel had that big decline in 2022. Overall, AMD's revenue is growing faster than Intel's, reaching $37.5 billion. Meanwhile, Intel's revenue jumped above $57 billion as the company finally revived growth after several years and tens of billions of dollars of investment.
Looking ahead, I suspect AMD's revenue growth will exceed Intel's revenue growth in the next three to five years. AMD server processors and GPUs are gaining immense popularity among customers and hyperscalers building data centers. Intel has only recently started to gain momentum, but only with its CPUs.
It does not yet have a competitive GPU for data centers. Additionally, Intel's contract manufacturing business—its foundry business— has recently signed several large customers but has yet to show the capacity utilization growth the company desperately needs due to its over-building . It needs customers who will use these capacities to generate better profitability.
When it comes to profitability, we see similar factors for AMD and Intel. Both companies suffered a major downturn after the economic recovery in 2022. Remember, consumer electronics sales were up during lockdowns , and that was good news for Intel and AMD. They have a strong sales concentration in the personal computer, laptop, and enterprise processor industries.
In addition , AMD has a strong market share in gaming consoles and gaming graphics cards for computers. So it benefited greatly from people spending more time at home, having more money thanks to government incentives, and fewer places to spend it. But these things are long-lasting assets. When you buy a game console, you usually keep it for a few years.
It's the same with a computer or laptop, you keep them for several years. So all those purchases during 2020-2021 led to an oversaturation of the market, and that created a slump in 2022 and 2023 , when people bought fewer of these devices. Fortunately for Intel and AMD, they have experienced a new wave of rapid sales growth thanks to spending on data centers, as well as the processors and graphics cards they use.
And we see how companies' profitability is recovering as a result of these sales growth. AMD's operating margin over the past 12 months has surpassed Intel's at 11.75%, but Intel is quickly catching up at 8.03%. Well, the battle for profitability between these two companies will be quite intense in the next few years, as, as I said, Intel has more room for improvement.
Capacity utilization will increase over the next few years. This will significantly increase profitability. Remember that AMD operates under a low- asset business model, so its operating profitability is not growing as quickly due to the specifics of this model. So the more units of product it produces and sells, the higher the cost of goods sold becomes.
This is a variable cost structure. The company places orders according to demand. Whereas Intel already has fixed capacity , so as sales increase, its profitability increases by a larger percentage than in the low- asset model. I expect the return on invested capital to follow a similar trajectory: AMD will grow to 7.56%.
I expect AMD's ROIC to improve significantly over the next three to five years as data center sales continue to grow rapidly. The company already has several multi-year contracts with major cloud providers, so its sales are likely to grow rapidly in the next few years. Similarly with Intel: as I noted earlier, increasing the use of already invested capital should increase the return on investment.
In the long term, I expect AMD to generate a better return on invested capital , as its low- asset business model does not require such large capital investments, and therefore allows for higher revenue with lower investments. Now let's look at cost estimation, and I would like to use two different methods.
The first is the projected price-to- earnings ratio. By this measure, Intel is more expensive with a forecast price-to- earnings ratio of 48.6. AMD is also relatively expensive with a forward price-to- earnings ratio of 32.5. Each of these companies is significantly more expensive than its rival, Nvidia, which, according to my latest data, less than 20.
But that's because Nvidia's earnings have already been growing rapidly, while AMD and Intel have only recently started to feel an influx of demand from the AI industry. So I also like to estimate value using a discounted cash flow model, and by that metric, AMD's market price of $489 is about $100 higher than the fair value , which I estimated at $387.
Meanwhile, Intel's market price of $99 is almost double the $51 I calculated as its fair value. So, Intel and AMD are trading at market prices that are well above my fair value estimates. They also trade at relatively high forward price/ earnings ratios. So it seems to me that the market is optimistic about the prospects of Intel and AMD, and quite rightly so.
They have excellent prospects and great demand for several years to come. Investors are right to remain optimistic, but I think it is a bit ahead of the curve, as these companies have yet to realize the big boom that is expected of them. So, with all of that in mind, if I had to choose between these two semiconductor companies and buy one of them today, it would be AMD.
It would be AMD because I like the company's competitive advantage in GPU and CPU. They have more of their own patented products. They have a better positioning in these industries. And I also prefer the company's lean business model compared to Intel's capital-intensive model. So, if I had to choose between them, it would be AMD.
I'm interested in hearing your thoughts. Which one would you choose? Let us know in the comments section below.
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