AMD vs Intel: Who are the potential stocks in the AI era?

Nvidia dominates the AI and GPU markets, but AMD and Intel are competing fiercely to participate in the AI growth process.

AMD and Intel compete directly in the CPU market, and both target the data center market.

AMD's profitability continues to improve, and growth is expected to be positive, while Intel's valuation is more reasonable and has the potential to turn a loss into profit.

Nvidia continues to dominate the AI and GPU markets. However, its peers have been trying to update their products to compete with Nvidia and participate in exponential AI growth.

Nvidia's closest competitor is AMD, which also supplies GPUs for data centers. Next is Intel, which is not only expanding its AI influence, but is also pursuing other revenue streams, particularly chip manufacturing.

In this article, we'll compare the performance of these two tech giants, and which one is more capable of challenging Nvidia? More importantly, which one is a better investment right now?

Both AMD and Intel have very diverse revenue streams. Here's a breakdown of AMD's revenue streams:

As we can see, a large portion of its revenue comes from data centers, but the part that has grown the most in recent quarters is actually clients, that is, revenue from CPUs and components for desktops and electronic devices.

Intel changed the way revenue is segmented in 2021. Most of its revenue comes from clients, data centers, AI, and the network and edge.

In this regard, AMD and Intel compete very directly in the CPU market, while both are trying to capture the growing data center market.

Intel has just unveiled a new processor, the Intel Xeon 6, which is significantly less expensive than the competition.

AMD, on the other hand, introduced the X870 (E) chipset and the MI325X accelerator, as well as many other updated and very aggressive product roadmaps.

On the other hand, Intel is also trying to enter the fab market and plans to open fabs in the US and Europe. The company just signed a $11 billion Irish fab agreement.

From an investment perspective, betting on AMD is a more direct alternative to Nvidia. AMD's technology stack is closer to Nvidia's, while Intel is clearly behind.

Intel actually has a very different strategy. First, it's trying to expand the fab market, and it's worth noting that now it appears to be trying to close the AI chip gap by cutting competitors' prices.

Next, we compare the past, present, and future potential profitability of these two chip companies.

As we can see, AMD has been trying to be profitable in the past, although its profit trend has improved a lot since 2016, especially in terms of gross margin.

Intel, on the other hand, is the opposite. It has always been very profitable, but the situation has changed in recent years. Starting in 2012, overall gross margin showed a downward trend.

Intel's move to the fab has drastically changed the status quo. Also, I recently analyzed Intel and came to the conclusion that it is possible for it to achieve a 30% operating margin.

I also expect AMD's profit margins to increase as it takes up part of the high-end GPU market. However, I think Intel's profitability is clearly superior.

Now let's take a quick look at growth estimates.

Starting with AMD, we can see that analysts have pretty positive growth expectations for it. Annual revenue is expected to grow by over 27% by 2025. Meanwhile, EPS is expected to more than double in the next two years.

Meanwhile, Intel's earnings per share are expected to bottom out this year and then grow quite strongly. It will more than double by 2026. However, this must be understood in the context of Intel's sharp decline in earnings over the past three years.

Revenue growth isn't impressive, but it's expected to average over 10% in 2025 and 2026.

Both stocks are expected to perform well over the next few years. AMD has taken market share from NVDA, and Intel is also trying to seize market share and launch its fab business.

Next, let's take a look at the valuation.

Obviously, Intel's price is much cheaper than AMD. But is such a big discount justified?

Intel's stock price is more reasonable considering future growth. For example, it has an expected price-earnings ratio of 0.58, which is half that of AMD. The stock also had a price-earnings ratio of only half of FY1. The most notable thing for me is that Intel's cash flow is actually very reasonable at 10.89x.

I understand that today's market seems to prefer growth over value, but given Intel's superior profitability and less-than-impressive growth expectations, this seems like an extreme misalignment.

Finally, let's take a look at the chart for each stock.

Intel showed a clear downward trend, and the 10-day MA fell below the 50-day SMA after earnings sell-off. However, we have formed a bottom at the 78.6% retracement level, and RSI has formed a bullish divergence.

Looking at the right pane, we can see that June was not a good month seasonally, with an average reversal rate of 0.7%, but July had an average change rate of 2.6%.

As far as analysts' predictions are concerned, we have an overwhelming consensus, and the buying and selling camps are evenly matched.

This chart really doesn't look good, but I'm encouraged by the foundation we've formed at this critical retracement level.

AMD is gaining momentum, rebounding from the 50-day EMA. The RSI is neutral, and the MACD is trending upward every week.

According to seasonal data, June and July are generally poor months for AMD, and the average stock change rate is around negative 1%.

In the end, the analysts' consensus was overwhelming support for buying this stock.

While we can retest the 50-day EMA, this has clear upward momentum, and I wouldn't be surprised to see a new high soon.

Ultimately, determining which stocks are more worth buying depends on an individual's risk appetite and investment style. Intel did provide a more reasonable estimate, and if executed well, its potential transformation could surprise the market, but Intel hasn't done that in the past 10 years.

However, AMD has a more clear growth momentum, and this momentum will push this goal even higher.

There's no doubt that AMD is better suited for short-term deals, while I think Intel is more suited to a long-term, more conservative approach to investing. Currently, though, I'm rating both companies as a buy.