Top rated analyst, Hans Mosesmann, says Advanced Micro Devices (AMD) is a better buy than Intel Corporation (INTC). In fact, he recommends steering clear of Intel altogether. Although the analyst has a bullish buy rating on AMD, he downgraded Intel to sell back in late 2012.
While Intel is only up 2% year-to-date, AMD has exploded by a whopping 71%. Looking ahead the company is also expecting to see further market share growth with the release of their smaller chips. Votes from analysts in favor of AMD inspires confidence, but that’s not to say an investment in this stock comes without risk. The semiconductor industry is subject to fluctuation, and AMD is up against some stiff competition.
Using TipRanks’ investing tools, we wanted to dig a little deeper to determine if investors should also pick AMD over Intel.
AMD announced on April 30 that they had exceeded analysts’ estimates for Q1 earnings and sales. While these results represented a year-over-year decline, AMD projects that year-over-year growth will return in the second half of 2019. Management is expecting to see year-over-year earnings growth of 69% and 17% sales growth for the September 2019 Quarter.
AMD recently launched Navi-based graphics cards which give the company a competitive advantage over Nvidia Corporation (NVDA). The RX 5700 and RX 5700 XT were released at the same price points as Nvidia’s cards. According to Tom’s Hardware, AMD’s cards beat Nvidia’s in terms of both raw performance and power efficiency.
AMD’s CEO, Lisa SU, says that 2019 will be a big year for the company. “We view it as a significant product cycle, and as we go three to five years forward, we have a lot of things in the hopper. We’re working on many, many products,” she added.
The semiconductor company is becoming a key player in the CPU market space. They are expected to gain considerable market share in the server segment after the debut of their Rome products. AMD has also been reaping the benefits of Intel’s underperformance.
Intel has been struggling to keep up with AMD for quite some time. The company can’t compete with AMD’s CPUs in terms of both price and power consumption. For example, the Intel Core i9-9920X costs $1199 while the equivalent 3900X from AMD costs $499. AMD’s microprocessors also consistently outperform Intel’s and aren’t subject to the same security vulnerabilities. Not to mention Intel has more than $25 billion worth of long-term debt.
Mosesmann kept his Buy rating and $42 price target on the stock. He stated on July 8, “We expect AMD’s roadmap to continue to improve in the coming years while Intel’s desktop CPUs likely stagnate at 14nm++ until 7nm is available in 2022.”
AMD is incredibly expensive. They have a market value of $33 billion, but the company only saw $300 million in earnings. This gives AMD a 127 P/E ratio (TTM), higher than other low-margin businesses of this kind. For comparison, Intel shares have a P/E ratio of 11 while Nvidia has a 30 P/E ratio.
AMD needs to grow at a much faster speed in order to justify this valuation. When bitcoin’s price saw gains of up to 1,000% in 2017, AMD shares got a large boost. However, AMD couldn’t bank on crypto forever, and as a result the company’s growth rate fell dramatically. They finished Q4 2018 with growth of only 6% year-over year. Less crypto revenue played into the company’s Q2 2019 guidance, with management expecting revenue to drop 13% year-over-year to $1.5 billion. While this represents 19% sequential growth, the question remains as to whether this pace supports the high valuation.
The company could take a major hit if trade tensions further intensify. AMD relies on sales to Chinese supercomputer producers. An increase in export restrictions could cause material losses in this segment of their business.
Morgan Stanley analyst, Joseph Moore, reiterated his Hold rating and $28 price target. He expressed his concern with current growth estimates stating, “We continue to think that full year 2019 estimates are too high in graphics for AMD.”
The Final Verdict
The jury’s still out. AMD has a ‘Moderate Buy’ analyst consensus, with the stock receiving 13 buy ratings vs 8 holds in the last three months. The $32.22 average price target suggests upside potential of just 1%.
On the other hand, analysts are less optimistic about Intel. The stock has a ‘Hold’ analyst consensus and a $51.36 average price target, indicating a 7% upside.
An uncertain trading landscape as well as a steep valuation carry significant weight in deciding whether or not AMD is a good pick. However, if AMD can continue to take market share from Intel, the company just might be able to cement its standing in the semiconductor space.