Semiconductors are proving to be the motors that power today’s electronics world as they are used in a variety of applications. These include 5G, data centers, Internet of Things (IoT), mobile phones and automotive applications.
A Fortune Business Insights report indicated that while the semiconductor market was worth $425.96 billion last year, it is expected to grow to $803.15 billion by 2028. This indicates a compound annual growth rate (CAGR) of 8.6% between 2021 and 2028 .
Using the TipRanks Stock Comparison: let’s compare two semiconductor companies, Intel and AMD, and see what Wall Street analysts think about these stocks.
Intel’s products include processors that power PCs, a stand-alone system-on-a-chip (SoC), a multichip package, and memory and storage products.
In the second quarter of Intel reported adjusted revenue of $18.5 billion, up 2% year over year, surpassing internal guidelines by $700 million. Adjusted EPS came in at $1.28, which beat the internal guideline by $0.23 and beat the consensus estimate of $1.06.
About two days ago, INTC unveiled a roadmap for process and packaging technology. The company’s CEO, Pat Gelsinger, stated that Intel is accelerating its “innovation roadmap to ensure we are on a clear path to process performance leadership by 2025.”
Intel’s 20A process technology is expected to increase in 2024, while Intel 18A is currently in development and expected to debut in 2025.
But Jeffries analyst Mark Lipacis reasoned that given the company’s poor transistor performance over the past five years, “leading to the loss of transistor leadership in 2018, we think investors will be skeptical until INTC executes this plan.”
In other news, the company announced a new naming structure for its process nodes, “creating a clear and consistent framework to give customers a more accurate picture of process nodes across the industry.”
The analyst noted that the new node naming structure would result in a better comparison with Taiwan Semiconductor Mfg. Co. (TSM) and Samsung and will clear up confusion when it comes to the process node names.
The analyst has a Hold rating and a price target of $52 (2.2% down) on the stock.
The company expects to partner with QCOM on its 20A process technology, while Amazon will be the first customer to use Intel’s packaging solutions. (To see Intel stock chart on TipRanks)
Again, Lipacis pointed out that investors “would be skeptical here too until these customers actually start shipping in volume.”
However, the analyst believed that Intel’s advanced packaging technologies, such as EMIB and Foveros, “had the potential to provide differentiated capabilities.” But Lipacis also expected these companies to likely “put downward pressure on INTC’s gross margins.”
For FY21, INTC plans to spend between $19 billion and $20 billion on capex. According to Lipacis, the company plans to spend $23.5 billion in capex for its facilities in Arizona and New Mexico and plans to announce more facilities in the European Union and the US by the end of the year. .
The analyst believes this will push margins further down from 50% to 55% after 2021. Lipacis added: “Intel also reiterated its plans to leverage third-party foundry capacity and become a leading foundry foundry to serve customers worldwide. We believe this strategy will also prove dilutive to gross margins.”
As for the rest of the street, the consensus is that INTC is a Hold, based on 9 Buys, 11 Holds and 8 Sells. The average Intel price target of $60.86 implies upside potential of 14.4% to current levels.
Advanced micro-devices (AMD)
AMD delivered yesterday great results Q2 with revenue of $3.85 billion, a 99% year-over-year jump. Adjusted earnings were up 250% year-over-year to $0.63 per share, surpassing Street’s estimate of $0.54 per share.
For the third quarter, AMD has forecast revenue of $4.1 billion (plus or minus $100 million), representing a 6% sequential quarterly increase, driven by solid growth in its data center and gaming businesses.
Following strong second quarter results, Mizuho Securities analyst Vijay Rakesh raised the price target from $107 to $110 (20.8% up) and repeated a buy on the stock. Rakesh noted that AMD saw continued strength in graphics processing units (GPU) demand, with strong adoption for the company’s Milan data center and a move from its earlier Rome data center.
AMD raised its third-quarter non-GAAP gross margin outlook from 47% to 48%. Based on AMD’s forecast that operating expenses (opex) will account for 25% of revenues for FY21, Rakesh expects a weakening operating margin in the second half of the year. (To see AMD stock chart on TipRanks)
The analyst added, “We noted that AMD may need to increase its field support to compete with INTC.”
Data center revenue accounted for more than 20% of the company’s total revenue in the second quarter. Rakesh noted that Intel’s Q2 data center revenues, meanwhile, were $6.5 billion, up 16% on a quarterly basis. AMD noted during its earnings call, “We believe the data center business will continue to be a strong driver for us into the second half of the year.”
Analyst Rakesh noted, “While AMD’s lead times are >20 weeks versus INTC at 1-2 weeks and we believe AMD’s server share gains are limited in 2H21 delivery, AMD noted that it is making progress to ease the constraints.”
The analyst stated that next year appears to be “a server roadmap battle.”
He looked at the upcoming servers from AMD’s competitors and noted, “INTC’s Sapphire Rapids delay in 1H2022 is expected to provide a better competitive roadmap and close some gaps with AMD’s Milan and 5nm Genoa, although we believe AMD currently retains the performance leader.”
The analyst added that he believes AMD is well positioned, with strong demand trends for its “7nm [nanometer] or 5nm Server chip roadmap for INTC.”
As for the rest of the street, the consensus is that AMD is a strong buy, based on 11 bargains and 2 redundancies. The AMD average price target of $114.27 implies upside potential of 25.5% to current levels.
While analysts are on the sidelines about Intel, they are optimistic about AMD. Given the business transformation Intel is going through, analysts appear to be in a wait-and-see mode at the company.
Even Jeffries analyst Mark Lipacis’ channel checks and analysis have revealed that AMD is likely to build on its momentum through Q1 market share gains of 300bps and 150bps CPU [central processing unit] QQ revenue share in dual servers and notebooks.”
Based on the upside potential over the next 12 months, AMD appears to be a better buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this section should be construed as a solicitation to buy or sell securities.