Among chip stocks, Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) have hogged most of the attention of late. And rightly so. Both semiconductor companies have been regularly growing profits by double digits and seen their share prices more than double as a result. But with plenty of momentum and superior value, has industry stalwart Intel Corporation (NASDAQ:INTC) become a better buy than either of them?
INTC Gaining Steam
On the surface, the question seems absurd. Intel, after all, is up a mere 8% this year, paling in comparison to the 88% advance in NVDA and 24% gain in AMD. It’s not growing nearly as fast, either, as one might expect from a more established company. But Intel has a few things going for it that the two chip stock behemoths don’t.
For starters, it pays a respectable dividend. The INTC dividend yield is up to 2.75% following its May increase, its third in as many years. Nvidia offers a small (0.3% yield) dividend, while Advanced Micro Devices doesn’t offer one at all. That’s nothing new, of course. But in a bull market that many feel is long overdue for a correction, the safety of a meaningful dividend is a nice flotation device that could help prevent INTC stock from fully sinking if the market does start to take on water.
In that same vein, value is another thing INTC has going for it in a market that’s almost historically overvalued. The stock trades at less than 13 times forward earnings estimates, while AMD carries a forward P/E of 44, and NVDA’s is 47. I know, high valuation hasn’t dragged the latter two stocks down one lick in the last couple years. But with a potential correction looming, it could start to matter a lot more if and when the bears do take charge.
The other good INTC news is that while it’s true that Intel can’t match Nvidia’s or Advanced Micro Devices’ top- or bottom-line growth, it’s improving in both areas. Earnings per share increased 114% in the latest quarter, while sales growth has topped 9% in three of the last four quarters after failing to top 8% in any of the previous six quarters.
Unfortunately, that growth is expected to come to a screeching halt, as analysts are projecting flat sales and earnings in the last two quarters of the year. While Intel has beaten earnings estimates by an average of better than 5% in the last four quarters, a similar beat probably wouldn’t be enough to wow investors given the low expectations.
From a technical perspective, the INTC stock price today looks healthier than it has been in more than a year, trading well above its 50-day moving average. Up 13% in the last two months, the stock has plenty of momentum. But with no major Intel news in the pipeline until the likely lukewarm earnings due out later this month, INTC might have trouble sustaining that momentum.
Better Chip Stock Plays Than INTC
Long term, NVDA and AMD remain better buys — even if the market does correct. They may not be as cheap or pay a hefty dividend like INTC, but it’s hard to argue against those returns. Though INTC has made a nice push of late to at least join the conversation of intriguing chip stocks, I think the rally will be fleeting.
If you want to play the semiconductor, memory-on-a-chip surge, stick with the two stocks leading the charge.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.