If several chip stocks have achieved convincing performances in 2024, Intel(NASDAQ:INTC) And Advanced microdevices(NASDAQ:AMD) were not among them. Intel shares have fallen about 60% in the past year, while AMD shares have fallen about 18%.
Let’s take a look at which semiconductor stock looks to be the best candidate for a rebound in 2025.
In a semiconductor market largely driven by artificial intelligence (AI)Intel and AMD were largely afterthoughts. AMD is the distant No. 2 designer of graphics processing units (GPUs) behind the market leader Nvidia. Intel’s GPU market share, meanwhile, fell to zero, although it wasn’t a significant drop, with the company only having a 2% market share in PC graphics cards in 2023.
AMD has struggled to compete with Nvidia, largely due to the inferior quality of its software. In a recent study, SemiAnalysis called AMD’s off-the-shelf GPUs “unusable” for AI training, noting that it required “multiple teams of AMD engineers” to help fix the bugs software. However, AMD has managed to carve out a niche in AI inference, with SemiAnalysis saying its customers typically use AMD’s GPUs for narrow, well-defined inference use cases.
Still, AMD has been able to see strong data center growth, even if it’s not on the same scale as Nvidia. Last quarter, its data center revenue grew 122% year-over-year and 25% sequentially to $3.5 billion. The company credited its Instinct GPUs and EPYC central processing units (CPUs) with the increase in sales.
CPUs act as the brain of a computer, while GPUs have greater processing power. Although GPUs are getting a lot of deserved attention, AMD has made a good jump in the CPU market, noting that it has taken share in the CPU server market while doing well in the CPU market. PC.
Overall, AMD saw its third-quarter revenue climb 18% to $6.8 billion and its adjusted EPS jump 31% to $0.92. The company therefore continued to grow well despite the drop in its share price.
Intel, on the other hand, saw its revenue decline 6% last quarter to $13.3 billion, and its adjusted EPS came in at a loss of -$0.46 compared to a profit of 0. $41 a year ago. The only bright spot last quarter was its data center and AI segment, which saw revenue increase 9% to $3.3 billion. However, compared to Nvidia and AMD, this is a very modest gain in this segment.
Meanwhile, its largest segment, Client Computing, saw revenue fall 7%, to $7.3 billion. For comparison, AMD saw its Client segment revenue increase 29% last quarter to $1.9 billion, showing it is making some inroads into Intel’s core PC business .
But Intel’s biggest problems may come from its Foundry segment, which weighed heavily on its results. The company has invested money in this business through capital expenditures (capex) and by building new manufacturing facilities. However, the segment has consistently lost a lot of money, including an operating loss of $5.8 billion last quarter, or $2.7 billion when excluding a non-cash impairment charge.
Following the departure of its CEO Pat Gelsinger, Intel said it may consider spinning off its foundry operations. The company recently received $7.86 billion in direct funding and a 25% investment tax credit from the government to continue growing its U.S. manufacturing footprint.
From a valuation perspective, Intel is the cheapest stock, trading at a forward price-to-earnings (P/E) ratio of 12.6 times compared to AMD’s 17.6 times.
However, if we value Intel’s core business and its foundry business separately, its valuation is even more attractive.
Intel’s foundry business has lost a lot of money, but it also has a lot of physical assets. Intel has spent $68.5 billion on investments, primarily in the foundry sector, since the end of 2021 and has $104 billion in physical assets on its balance sheet. If you take into account just its recent capital expenditures and subtract its net debt of $26 billion, its foundry business would be worth about $10 per share on 4.3 billion shares. It also holds an 88% stake in Mobileyewhich is worth about $11.4 billion, or $2.66 per Intel share.
So it’s no surprise that the company has been the subject of takeover rumors. There are many hidden physical assets that are not reflected in its stock price, let alone direct funding and tax incentives from the government.
AMD, meanwhile, has certainly been the stronger of the two companies, even if it hasn’t gotten the investor respect it deserves. If more AI infrastructure moves toward AI inference, that could be a good thing. At the same time, investors shouldn’t overlook its CPU business, which has gained market share in both data centers and PCs.
I like both stocks as turnaround candidates this year. I like Intel a little more because of the significant value that I think is still in stock. However, AMD also appears to be a strong rebound candidate. Fortunately, investors don’t have to choose and can add both stocks to their portfolio if they wish.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Intel and Nvidia. The Motley Fool recommends the following options: Short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
