AMD is a great company! It’s doing some impressive things. And AMD stock shot up over 10% in just one day when it announced a partnership with Meta. Although, as an investor, I have to look at the price relative to value. Anytime you buy a stock, you’re becoming a partial owner in the business.
Investors have bid up AMD’s stock price and it’s hard to justify. In this article, I’m going to show you a side-by-side look at AMD and Intel from an investor’s perspective. You’ll see their revenue growth, market caps and much more. Intel’s recent announcements are an important piece of the equation as well.
Also, unlike a lot of voices you might hear online, I tend to put my money where my mouth is. I bought shares of Intel back in October 2020 for $46.44. And today, Intel stock is still towards the top of my buy list. I might double down if there’s another pullback.
To start, let’s look at the recent big news from Intel…
Intel Swings Back at AMD
Intel recently released its 12-gen Alder Lake processors. These were a big jump up in terms of performance. And it puts Intel back on top based on many benchmark tests.
Due to the complexity of processors and all the abstraction layers (different operating systems, types of games tested, etc.), it’s hard to do an apples-to-apples comparison. Nonetheless, it looks like the big tech YouTubers tend to agree that Intel has finally pulled ahead. Their channels have many tens of millions of followers and influence what people buy. Just keep this in mind as we jump into some of the key financial data…
Intel vs. AMD Revenue Growth
When it comes to total revenue, Intel blows AMD out of the water…
In 2020, Intel brought in close to $78 billion in sales. On the other hand, AMD had close to $10 billion in sales. Intel’s total revenue makes AMD look tiny in comparison. Sales for both are growing but I do need to point out that AMD’s revenue is growing at a faster pace. That’s a bit harder to see in this chart. AMD’s trailing 12-month revenue has come close to $15 billion.
This growth – and the tech behind it – is why many investors have bid up AMD’s stock price and in turn, the company’s valuation. AMD’s market cap comes in at $181 billion today. That’s not far from Intel’s market cap of $209 billion. And this gives Intel a price-to-sales ratio of below 3 and AMD comes in at over 12.
AMD investors are paying a big premium and expect higher sales growth to continue. But to reach the same level of revenue Intel has today, AMD would need to increase its total sales by close to 430%. But Intel’s revenue continues to grow as well.
With Intel’s recent processor jump and other segments and industry trends, I think AMD’s price is too high to justify. It’s a great company… but valuation-wise, a lot needs to go right to see even higher returns going forward.
It’s important to note that in the short-term, AMD stock could easily continue to climb… but I’m a long-term investor and I try to avoid timing short-term trends. If you believe Warren Buffett and many of the world’s best investors… it’s impossible to consistently predict market swings. To build real wealth, time in the market is more important than timing the market.
Overall, both AMD and Intel have many great products and continue to innovate. But as mentioned, investors need to be wary of the price they pay relative to the underlying value… the probability of outcomes.
When it comes to profitability and free cash flow, Intel also blows AMD out of the water. On top of that, there are two other major reasons I prefer Intel over AMD. It’s more diversified and also continues to pay bigger dividends to investors.
Intel Technology Expands
Here’s a breakdown of Intel’s revenue by segment based on Q3 2021…
Its largest segment Client Computing Group (CCG) accounted for just over half of total revenue. Growth for this segment isn’t great but that might change with the big bump in processors… and as the chip shortages ease up.
The second largest revenue segment was the Data Center Group (DCG) and it accounted for 36% of total revenue. This segment grew by 10% year-over-year and should continue to climb going forward.
The remaining segments include the Internet of Things, Mobileye for autonomous driving, and many other technologies. They’re a small piece of the pie today but that might change in the years ahead. Intel has many irons in the fire.
Under the direction of the new CEO Pat Gelsinger – who’s a true engineer back at the helm – Intel is making big moves into fabs to expand its manufacturing. Intel recently announced that it’s going to invest $20 billion to build two new fabs in Arizona.
Over the past five or 10 years, Intel has had some missteps. It’s had many delays and competitors have gained market share.
As a result, Intel stock is cheap today. It’s trading at a discount to its competitors even with its much higher sales and profits that continue to grow. If Intel is even close to the new timeline it’s laid out, we should see an expansion in its valuation multiples.
That’ll be great for investors and either way, the stable cashflows and bigger dividends should continue…
Intel Dividends for the Win
Here’s Intel’s dividend history over the past decade…
Intel continues to increase its dividend and it’s more than doubled since 2010. With recent increases it’s outpacing inflation as well. The best part though is that it’s one of the safest dividends around.
When looking at both net income and free cash flow, the payout ratio is low. The standard payout ratio has come in below 30% the past few years. That’s an incredible margin of safety and even with Intel’s new spending on fabs, etc., the dividend is rock-solid with plenty of room to grow.
Intel vs. AMD Final Thoughts
Both Intel and AMD are in growing industries. Although, I’m going with Intel when considering price relative to the underlying value. Whether you invest in one or both companies, I hope they both reward shareholders for many years to come.
Intel and AMD keep on swinging back and forth with market share. Competition is picking up again and ultimately, we all will win. The innovation and products they create benefit us all.
If you found this research useful, I’d really appreciate it if you’d subscribe to my YouTube channel. And as always, please let me know if you have any comments or questions down below.
Invest mindfully,
Brian Kehm