Intel vs AMD: A Generational Battle
Summary
- AMD has focused on lower-cost, budget-friendly, middle and low range CPUs
- Although AMD is trading for extremely high multiples, it may be warranted considering its growth factors and market share
- Stock valuation models show Intel is a better buy, but growth factors lean towards AMD
Background
The decade-old question of who has better products; Intel or AMD? Both companies create motherboards, servers, and other computer-related hardware. In terms of the x86 microprocessor, AMD is Intel’s biggest competitor.
In March 2017, AMD introduced its highly successful Ryzen microprocessor, positioning it as a more affordable alternative to high-end CPUs and a product capable of challenging the best of Intel’s chips. The Ryzen microprocessor was a completely new design capable of breaking overclocking records while still being affordable for the budget-conscious consumer.
Share of Intel and AMD x86 computer CPUs worldwide 2012–2022, by quarter. In the first quarter of 2022, 65 percent of x86 computer processors or CPU tests recorded were from Intel processors, up from the lower percentage share seen in previous quarters of 2021, while 34.9 percent were AMD processors.
Comparison
Multithreading, or Hyper-threading as Intel likes to call it, improves the performance of CPU by maximum utilization and keeping the idle time of CPU to a minimum. This was the foundation for Intel’s new processors to compete with the Ryzen 9 series that dominated the market.
As you can see by the chart above, the reason why this new process was successful was because it holds the top 3 fastest processors in the game right now. This process has surpassed anything that we have seen in.
According to tomshardware.com “If you’re looking for the fastest gaming chip on the market, Intel’s Alder Lake chips have taken the crown from AMD in convincing fashion. They also expose the most overclocking headroom that we’ve seen in recent history, giving Intel yet another advantage for enthusiasts.”
As it seems, Intel offers the best onboard graphics, and its Tiger Lake H CPUs are exceedingly capable.
“Nevertheless, Ryzen 5000 chips with Zen 3 cores also are amazing and very efficient. An AMD Ryzen 5000 CPU seems to still be the best option though. Everything from the 5600X to the ludicrously powerful 5950X offer the best gaming and productivity performance. Intel’s options are becoming more affordable to make them more competitive, which might make them worth it. But for raw power, AMD holds the lead based on price and efficiency for desktops.”
As it seems, Intel has the best CPUs on the current market, but at a costly price. Any of the top three best performing processing cores can be priced upwards of $500 while all of AMD's processors can be found for $400 or less. In terms of product-wise, I would still favor AMD CPUs because although the overclocking isn’t as high, it is a lot more cost-efficient.
Intel Valuation
Given the conservative estimates above, Intel’s fair value based on future projections of revenue is around $53.80. These numbers were found using historical data and projections based on Intel’s last 8 earnings. Having a price target of $53.80 with an annualized return of 12.5% implies a 6% upside from Intel’s current stock price of $50.20 a share.
It can be argued that Intel’s current price does not accurately reflect its intrinsic value based on the risk of slowing revenue growth, however, I believe that even with a margin of safety of 10%, their 25% pullback from all-time highs was unwarranted. There is high upside potential as long as Intel consistently hits wall street’s expectations in the next few years.
AMD Valuation
As you can see by this 5-year model above, there is a current 11% downside to AMD’s stocks based on these projections. As a value investor, I like using relatively conservative estimates so that I am not surprised by revenue stints in the future. I set the annualized return to 12.5% because many ETFs and Mutual funds are giving a return of anywhere between 7–10%. If it matches the ETFs or Mutual funds, there is no reason to invest in singular companies.
It can be argued that AMD’s current price doesn’t accurately reflect their intrinsic value based on the risk of total market share and slightly underperforming products, however, I believe that they are an extremely solid growth company with just a slightly overvalued valuation. There is high upside potential as long as AMD consistently earnings and revenue estimates for the next few years.
Growth Factors — Intel
One of the growth factors I would like to point out is new leadership. Leadership has become an ongoing problem for Intel. The unexpected resignation of former CEO Brian Krzanich over a relationship with an employee brought Bob Swan to control in 2018. However, Swan’s expertise lay in finance instead of engineering, leaving Intel with no strategy to regain its edge.
Intel could forge a comeback — thanks in part to the Feb. 15 arrival of Pat Gelsinger as CEO. Gelsinger has amassed more than four decades in the tech industry as both an engineer and a manager. He spent 30 of those years at Intel and most recently served as the CEO of VMWare(Bloomberg.com).
Gelsinger also helped design Intel’s original 80486 processor that featured an 8k cache for storing instruction. He also served as the company’s first chief technology officer, which may give him the advantage in knowing what Intel needs to again become competitive.
Another thing to add is the Mobileye IPO that has driven millions of dollars of revenue for Intel.
“Chip giant Intel (NASDAQ: INTC) paid $15.3 billion for autonomous driving company Mobileye in 2017. Intel saw a huge opportunity at the time, saying that the market for vehicle systems, data, and services could grow to $70 billion by 2030.”(Nasdaq.com)
Intel announced in January that it plans to take Mobileye public in mid-2022. The company will retain a majority stake, and Intel and Mobileye will continue to co-develop solutions.
Gelsinger anticipates the amount of chips built into an upscale passenger car will quintuple by 2030. He estimates the total addressable market for automotive semiconductors will grow to $115 billion by the end of this decade, up from an estimated $50 billion in 2021.
Growth Factors — AMD
AMD has an extremely bright future ahead of them with their new series of CPUs coming out shortly. AMD restated in the last earnings call that we should expect Ryzen 7000 Zen 4 CPUs in Q2 2022. More recently, hardware leakers suggest new Ryzen chips could be in our systems by Q3 2022.
The 7000 series could launch AMD to the top of the leaderboard if they are able to make it less costly than Intel’s current top-of-the-line products.
A short clip from the January 2022 keynote was posted to the official AMD Ryzen Twitter account. This highlights the gaming performance you can expect while playing AAA games at 1080p, with all Zen 4 core speeds apparently running at 5GHz.
According to techadvisor.com, other key specs mentioned by AMD include support for DDR5 RAM and PCIe 5.0. These were both suggested in an April 2021 article by Guru3D.com, which pieced together several sources reporting on the CPUs. Key takeaways include a move to the upcoming Zen 4 architecture, as well as DDR5 RAM and PCIe 5.0.
This will likely be Navi 2 on the desktop ‘Raphael’ chips, before ‘Phoenix’ brings the new RDNA 3 solution to market. Phoenix will supposedly be pitched as the mobile solution that will eventually make its way into laptops, but it will be available in desktop PCs too. This is where we also expect the Ryzen 7000 G-Series to fit in, offering a high-end gaming experience on more affordable hardware(Guru3D.com)
All this means is that AMD will start integrating more into the laptop industry. This has been a sector that has been securely held down by Intel and may be a way to break into Intel’s market share. Intel has dominated the mobile markets over the past decade I believe AMD will have a hard time garnering a larger market share without making a move like this soon.
Conclusion
In the market, we have seen time and time again luxury vs usability. This is what we are seeing here with Intel vs AMD. There will always be a market for AMD because they have constantly undercut the prices of Intel. Although the performance of Intel’s CPUs is currently better, we don’t know how the Zen 4 CPUs will do. If these CPUs perform better than Intel’s current top-of-the-line products, then I firmly believe that AMD will garner a larger portion of the market share.
However, AMD stock is currently trading at 47x earnings. The valuation appears to be justified given that AMD’s earnings are expected to grow at an annual pace of 35% for the next five years. Intel, meanwhile, is expected to clock just 3% annual earnings growth for the next five years, indicating that AMD is the better growth play for investors who are willing to buy the stock at its rich valuation.
Intel, however, is trading at just 10 times trailing earnings and is looking undervalued from a fundamental metric standpoint. I believe that Intel has proven that they are here to stay, but there is rather limited upside given current stock prices.
AMD on the other hand can be considered near fair value/slightly overvalued given the current numbers, but I love their outlook with cheaper products and awesome potential growth.
Holding both in my opinion would be great, but if you were to choose one, I would pick Intel over AMD at the current price point as their business model has proven they will continue to lead the industry.
Let me know your comments below!
Disclosure
I/we have stock, option, or similar derivative position in any of the companies mentioned, and plan to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business and/or relationship with any company whose stock is mentioned in this article.
