Intel’s manufacturing plans, which include investments in new factories and the launch of a new foundry unit for third-party chipmakers, have also defied calls for the company to become a factory-less chipmaker like Advanced micro-systems (NASDAQ: AMD).
Intel has also postponed the launch of its long-delayed 7nm chips to 2023, indicating that it will fall even further behind. Semiconductor manufacturing in Taiwan (NYSE: TSM) and Samsung in the “process race” to make smaller, more advanced chips. Intel would also rely on TSMC factories to produce these 7nm processors.
Given all of these challenges, Intel expects its revenue and adjusted profit to decline by 7% and 13%, respectively, for the full year. Intel’s stock might look like a bargain right now at 13x futures earnings while paying a 2.4% futures dividend yield, but it’s cheap for obvious reasons.
Instead of waiting for Intel’s icy turnaround efforts to bear fruit, investors should simply buy AMD or NVIDIA (NASDAQ: NVDA) as their main semiconductor plays instead.
1.AMD is catching up with Intel again
AMD is a factory-less chipmaker that outsources the production of its chips to third-party foundries such as TSMC. Intel manufactures most of its chips in-house, but its own foundries have struggled to make the most efficient chips TSMC specializes in.
As Intel postponed its latest chips and battled shortages, AMD edged Intel in the process race by using TSMC’s top factories. Many PC manufacturers then started to use AMD chips instead of Intel.
As a result, AMD’s share of the x86 processor market increased from 20.2% to 38.4% between the second quarters of 2017 and 2021, according to PassMark Software. Intel’s share rose from 79.7% to 61.5%.
AMD’s latest Ryzen and EPYC processors are built on TSMC’s 7nm process, giving it a generation ahead of Intel, although Intel claims its 10nm node is comparable to TSMC’s 7nm node. But AMD will likely launch its new 5nm processors later this year, putting it firmly ahead of Intel’s 10nm chips.
AMD’s revenue rose 45% to $ 9.76 billion last year. Its IT and graphics revenue rose 37% to $ 6.43 billion, fueled by strong demand for its Ryzen processors and Radeon GPUs. Its EESC (enterprise, in-vehicle and semi-custom) revenue soared 65% to $ 3.33 billion as it sold more EPYC server chips and custom chips for new game consoles. Its adjusted profit was more than doubled.
Wall Street expects AMD’s revenue and profits to grow another 48% and 67%, respectively, this year, as it continues to gain ground against Intel in the PC and center markets. data. It will also likely keep pace with NVIDIA in the high-end GPU market, which is expected to benefit from new game launches and demand for new cryptocurrency mining cards.
2. NVIDIA becomes a disruptive superpower
Like AMD, NVIDIA is a factory-less chipmaker that relies on TSMC and Samsung instead of making its own chips.
The NVIDIA brand is often associated with gaming GPUs, but it also provides high-end GPUs to data centers for AI and machine learning tasks. Its smaller Arm-based processor company sells Tegra processors for embedded systems and Grace processors for servers, while its recent takeover of Mellanox expands its data center business with sales of network equipment.
NVIDIA’s revenue jumped 53% to $ 16.7 billion in fiscal 2021, which ended in January, as its adjusted profit climbed 73%. Its strong sales of GPUs for gaming PCs and data centers offset declining sales of its professional visualization and automotive chips throughout the pandemic.
Analysts expect NVIDIA’s revenue and profits to grow 34% and 35%, respectively, this year. But those estimates likely didn’t factor in its planned $ 40 billion purchase of Arm Holdings, the UK-based chip designer that provides the architecture for nearly every mobile device in the world, from the Japanese conglomerate. . SoftBank (OTC: SFTBF).
This proposed buyout faces many regulatory challenges, but it could turn NVIDIA into a semiconductor superpower for two reasons. First, all Arm-based chipmakers around the world would have to pay NVIDIA high margin royalties and license fees. Second, it could design and manufacture new high-end Arm chips – like its new Grace processor – to challenge Intel and AMD in the PC and data center markets.
The bottom line
AMD and NVIDIA are trading at around 30 and 40 times future earnings, respectively. AMD does not pay a dividend, while NVIDIA pays a small forward dividend yield of 0.1%.
Value-seeking investors might avoid these higher valuations and stick with Intel, but that would be a mistake. AMD and NVIDIA deserve their premium ratings and are expected to continue to grow as Intel struggles to overturn years of poor management decisions.