Editor’s Note: This article was updated to correct some information about Xilinx.
For several years, the basic narrative behind the semiconductor space went something like this: Intel (NASDAQ:INTC) provided the premium-end processors, and Advanced Micro Devices (NASDAQ:AMD) was the poor man’s Intel. Look at the charts, though, and you’ll see that this narrative has changed. AMD has skyrocketed to low-earth orbit, while INTC stock has floundered.
What has bothered Intel’s management team the most, however, was AMD’s production acumen. No longer content on dominating the lower-tier processor categories, the smaller semiconductor firm began flexing its muscle. As I mentioned a few months back, AMD stole the show at the 2019 Computex industry conference. With high-level processors designed to compete and steal market share from INTC, Intel stock looked incredibly vulnerable.
However, we’re starting to see signs that the tide might turn back to Intel’s favor. Recently, the company has made substantial progress with its Agilex field-programmable gate arrays, or FPGAs. These are modular chips capable of easy configurations to fit multiple functionalities. As such, FPGAs are incredibly valuable to companies advancing 5G network technologies. That offers synergistic opportunities that can bolster INTC stock.
Additionally, Intel claims that the Agilex FPGAs can either impart more performance or less power consumption than its predecessor FPGAs. The company claims that the Agilex is also useful for data centers, which I don’t doubt. As a study from Berkeley Economic Review pointed out, Intel has a strong reputation for producing reliable chips.
Best of all, the semiconductor giant snagged Microsoft (NASDAQ:MSFT) as an FPGA client. Naturally, this is a massive development for Intel stock. However, investors remain leery about the equity’s choppy manners: can they trust INTC?
Comparisons Benefit INTC Stock
My answer to the above question is yes. However, it’s a nuanced affirmation.
Obviously, one of the big challenges with the semiconductor industry is the U.S.-China trade war. If it keeps dragging, as some economists suggest, that may cap growth in the sector. Moreover, I’m eyeballing the economic turmoil in Germany and Europe overall. Combined, these headwinds could devastate consumer demand.
That’s the bad news for Intel stock. The good news is that the U.S. is locked in a technological race with its adversaries. Now more than ever, we need our big tech firms to innovate. Part of the enthusiasm over the Agilex FPGAs is our collective progress in the space. Additionally, Intel has significantly narrowed the production and distribution gap with rival Xilinx (NASDAQ:XLNX), which leads the sector. Naturally, this benefits INTC stock longer term.
Therefore, if you believe that certain semiconductors will perform well even against economic headwinds, you should consider Intel stock. Because compared to its rival AMD, INTC at this juncture may have the better outlook.
Yes, I’ll concede that AMD has better sex appeal because of their flashy new processors. Also, AMD CEO Dr. Lisa Su engineered one of the most remarkable comebacks in business.
At the same time, this is also a “what have you done for me lately” business. And right now, some evidence indicates that AMD may have pushed their products too quickly without proper quality control. In the nearer term, that might not matter much. But over the long haul, it could worry clients.
Let’s face it: in a recession, you want every dollar to count. Therefore, when organizations invest in data centers, for instance, they want consistent, reliable performance. In that department, Intel has the proven history, bolstering the argument for INTC stock.
Technical Comparison Also Supports Intel Stock
Moreover, if we suffer a recession, I believe the technical argument also supports INTC stock. For one thing, AMD has ripped out another strong year so far, gaining 71% year-to-date. On the other hand, Intel is quite the laggard relatively speaking, up less than 16%.
However, this also helps Intel’s case, especially if the markets get choppy. AMD has enjoyed speculative fervor, and for good reason. But Advanced Micro is unlikely to continue generating the kind of exciting news to take shares to even higher plateaus.
In contrast, Intel shares have been stuck in sideways trading for most of the trailing two-year period. After so much terrible news, shares may experience an upswing. Also, don’t forget that Intel pays you a dividend, giving you some incentive to hold.
As I said before, the semiconductor space has risks. But if you’re searching in this area, I’d rather go for the beaten-up name with an exciting product pipeline rather than one that has already enjoyed the red-carpet treatment many times over.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
