Advanced Micro Devices (NASDADQ:AMD) is definitely a survivor. Not long ago, the company was on the verge of oblivion. But during the past couple years, AMD stock has staged an amazing comeback.
Note that for the year so far the gain on the shares is a sizzling 72%. Consider that this week the stock price hit the highest levels in 12 years.
Then there is Intel (NASDAQ:INTC), which is another story altogether. The company has been beset by product delays and lapses. Some Wall Street analysts have also gone negative. For example, Goldman Sachs’ (NYSE:GS) Toshiya Hari downgraded the shares to a “sell” and reduced the price target from $49 to $44 (the current stock price is $47).
So then, what now? Is AMD stock still the best option? Or could Intel be an interesting value play? Well, let’s take a look at some key factors:
AMD Stock v. Intel Stock: Leadership
When Lisa Su took the helm of AMD in late 2015, she was taking on an enormous challenge. The company was low on resources and the product line was lackluster.
But she wasted little time in making transformative changes. Even though she reduced the costs, she still found ways to find ways to retool the chipsets. She was also smart in target, key market areas like the data center opportunity.
Yet Su’s success should not be a surprise. She has the right blend of skillsets to be a top-notch leader in the intensely competitive chip industry. Su has a deep technical background, with a doctorate degree in electrical engineering from MIT. She also wrote over 40 technical papers.
During her career, Su also has taken on various leaderships roles, such as at IBM (NYSE:IBM) and Freescale Semiconductor. She got experience with broad areas like marketing, global operations and sales.
As for Intel, the situation has been different. Of course, during June the company’s CEO, Brian Krzanich, was forced out because of a consensual relationship with an employee. He had been with the company since 1982.
The CFO, Robert Swan, stepped in to replace him on an interim basis.
While Intel has a deep bench of executives, the fact is that a CEO departure is always disruptive.
AMD v. Intel: Growth Opportunities
All parts of AMD’s business are running at a strong pace. During the latest quarter, revenues spiked by 53% to $1.76 billion and gross margins improved by more than 3%.
But perhaps the biggest driver is the data center segment. The EPYC server processor has seen strong adoption from mega operators like Cisco (NASDAQ:CSCO) and HP Enterprise (NYSE:HPE).
Keep in mind that INTC has about 99% of the market. So yes, this is a juicy target for AMD.
After all, customers want an alternative, such as to get better pricing. But AMD has also leapfrogged INTC in terms of innovation. Note that early next year the company is expected to launch its 7-nanometer chips. INTC, on the other hand, will come out with its 10-nanometer offerings in late 2019.
As data centers get more sophisticated, such as with machine learning and Artificial Intelligence, it is important to have next-generation systems. In other words, AMD stock looks poised to benefit from its innovations.
AMD v. Intel: Bottom Line
Now it’s true that on a valuation basis AMD stock is trading at hefty levels. Consider that the forward price-to-earnings ratio is at 35X. By comparison, INTC stock is trading at only 11X.
But when looking at the growth opportunities and innovations, AMD stock really does deserve a premium valuation. More importantly, it looks like the momentum will continue for some time.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
