While several chip stocks had convincing performances in 2024, Intel (NASDAQ: INTC) and Advanced Micro Devices (NASDAQ: AMD) were not among them. Intel shares fell about 60% last year, while AMD shares were down about 18%.
Let's examine which semiconductor stock looks like the better rebound candidate in 2025.
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In a semiconductor market largely being driven by artificial intelligence (AI), Intel and AMD have largely been afterthoughts. AMD is the distant No. 2 designer of graphic processing units (GPUs) behind market leader Nvidia. Intel's market share in GPUs, meanwhile, has dropped to zero, although it wasn't a far fall, with the company having just a 2% market share in PC graphics cards in 2023.
AMD has struggled against Nvidia, largely due to its inferior software. In a recent study, SemiAnalysis called AMD's out-of-the-box GPUs "unusable" for AI training, noting it needed "multiple teams of AMD engineers" to help it fix software bugs. However, AMD has been able 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.
Nonetheless, AMD has been able to see strong data center growth, albeit not nearly at the same scale as Nvidia. Last quarter, it saw its data center revenue surge 122% year over year and 25% sequentially to $3.5 billion. The company credited both its Instinct GPUs and EPYC central processing units (CPUs) for the jump in sales.
CPUs act as the brain of a computer, while GPUs have superior processing power. While there is a lot of deserved attention on GPUs, AMD has been doing a good jump in the CPU market, noting that it has been taking share in the CPU server market while it also has been doing well in the PC market.
Overall, AMD saw its Q3 revenue climb 18% to $6.8 billion and its adjusted EPS jump 31% to $0.92. So the company has still been growing nicely despite the dip in its stock price.
Intel, on the other hand, saw its revenue decline last quarter by 6% to $13.3 billion, and its adjusted EPS flip to a loss of -$0.46 versus a profit of $0.41 a year ago. The one bright spot last quarter was its data center and AI segment, which saw revenue rise 9% to $3.3 billion. However, when compared to Nvidia and AMD, that is a very modest gain in this segment.
Meanwhile, its largest segment, Client Computing, saw its revenue drop 7% to $7.3 billion. By comparison, AMD saw its Client segment revenue surge 29% last quarter to $1.9 billion, showing it's making some inroads on Intel's primary PC business.
Perhaps Intel's biggest woes, though, stem from its Foundry segment, which has been a big drag on its results. The company has poured money into this business through capital expenditures (capex), building out new manufacturing facilities. However, the segment has been a consistently large money loser, including reporting a $5.8 billion operating loss last quarter, or $2.7 billion when excluding a noncash impairment charge.
Following the exit of its CEO Pat Gelsinger, Intel has said it could look to spin off its foundry business. The business recently received $7.86 billion in direct funding and a 25% investment tax credit from the government to continue to build out its manufacturing footprint in the U.S.
From a valuation perspective, Intel is the cheaper stock, trading at a forward price-to-earnings ratio (P/E) of 12.6 times versus 17.6 times for AMD.
However, if you separately value Intel's core business and its foundry business, its valuation is even more attractive.
Intel's foundry business has been losing lots of money, but it also has a lot of physical assets. Intel has spent $68.5 billion in capex, mostly on the foundry business, since the end of 2021 and has $104 billion in physical assets on its balance sheet. If you take just its recent capex spending and subtract out its $26 billion in net debt, its foundry business would be worth about $10 per share on 4.3 billion in shares. It also owns an 88% stake in Mobileye, which is worth about $11.4 billion, or $2.66 per Intel share.
As such, it is no surprise that the company has been the subject of takeover rumors. There are a lot of hidden physical assets not reflected in its share price, not to mention the government's direct funding and tax incentive.
AMD, meanwhile, has certainly been the stronger of the two businesses, although it hasn't gotten the investor respect it may deserve. If more AI infrastructure turns toward AI inference, it could be in a good place. Meanwhile, investors shouldn't overlook its CPU business, which has been gaining share both in data centers and PCs.
I like both stock as turnaround candidates this year. I like Intel slightly more because of the deep value I think is still in the stock. However, AMD also looks like a solid rebound candidate. Fortunately, investors don't have to choose and can add both stocks to their portfolios if they choose.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in 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.