Wall Street remains bullish about the semiconductor sector.
Demand for PCs, gaming consoles, and laptops has soared in the past two years as more people worked from home due to the pandemic. Moreover, the usage of semiconductors is increasing in different applications from automobiles to mobiles.
A Fortune Business Insights report estimates that the semiconductor market is likely to grow at a compounded annual growth rate (CAGR) of 8.6% between 2021 and 2028 to $803.15 billion.
Let’s compare two such semiconductor companies, Intel (NASDAQ: INTC) and AMD (NASDAQ: AMD), using the TipRanks Stock Comparison tool, and examine how Wall Street analysts feel about these stocks.
Intel
Intel’s products include processors that power PCs, a standalone system-on-a-chip (SoC), a multichip package, and memory and storage products. For the past few years, Intel has been technologically falling behind the competition.
To correct Intel’s course, the semiconductor company appointed former CTO Pat Gelsinger as CEO in February last year. Last year, the company also unveiled a process and packaging technology roadmap – IDM (integrated device manufacturer) 2.0 strategy, which included the launch of Intel Foundry Services (IFS), a new foundry business, and a $20-billion investment in two new fabs in Arizona.
However, at an investor meeting in February this year, the company’s business outlook left analysts looking for more. The management expects its annual revenue growth to accelerate from a low-single-digit percentage year-over-year in 2022 to 10-12% by 2025 or 2026.
This outlook could be in doubt because some of Intel’s key product launches (particularly Granite Rapids, a Xeon server processor and successor to Sapphire Rapids) have been pushed back further into 2024.
Wall Street analysts have been concerned that with the delay in the launch of these processors, Intel could lose its market share in the data center market to AMD.
Gelsinger acknowledged at a conference in March that in the data center market, “it’s going to be a pretty close race” with AMD when Intel’s “Granites and Sierra Forest” are launched.
The data center market is an important one for Intel, and comprised 32.6% of the company’s total revenues of $79 billion in FY21.
Besides the market share losses, other concerns for Rosenblatt Securities analyst Hans Mosesmann are a “change in the business model, suspect secular sales growth [and] sub-optimal manufacturing (lagging leading foundries by 1-2 years).”
As a result, the analyst is bearish with a Sell rating and the lowest price target on the Street on the stock of $40.
Other analysts on Wall Street, however, do not share Mosesmann’s view and are sidelined on the stock with a consensus rating of Hold based on eight Buys, 13 Holds, and seven Sells. The average Intel stock prediction is $53.76, implying 12.2% upside potential to current levels.
Advanced Micro Devices
Shares of AMD dropped 8.3% on Thursday to close at $109.34 following a downgrade of the stock from Barclays analyst Blayne Curtis.
Curtis downgraded the stock from a Buy to Hold and lowered the price target from $148 to $115, the lowest price target on the Street.
While the analyst acknowledged that he expects AMD to continue to grab market share from Intel when it comes to client and server markets, Curtis does not expect AMD to sustain this growth rate going forward.
The analyst stated in his research note, “…while we do see upside to the 31% growth target this year, where we have an issue is for 2023, as we see cyclical risk across several end markets (PC, Gaming, and broad-based/XLNX).”
However, this view is not shared by Mosesmann. The analyst’s investment thesis is centered on his belief that AMD is “set to gain significant data center market share,” and not “a PC market that is up or down 5%.”
Mosesmann believes that AMD will very well achieve its target of 30% year-over-year growth for 2022. AMD primarily offers x86 microprocessors (CPUs) for PCs, and server and embedded processors, semi-custom system-on-chip (SoC) products.
On its Q4 earnings call, the company’s management stated that for 2022, AMD expects growth across all its business segments fueled by strong demand for its products. From 2023 onwards, AMD anticipates that “the percentage of data center to continue to increase as we go into next year, and we’ll give more on that as we go through the year.”
When it comes to the PC market, the analyst is of the view that the PC market will be “flattish” this year based on his channel checks. Even in such a market, Mosesmann continues to see AMD “structurally, to continue to gain PC CPU market share.”
Drawing a comparison between Intel and AMD, Mosesmann agreed with Curtis regarding Intel’s market share. Mosesmann stated that with Intel’s Sapphire Rapids and Granite Rapids processors delayed, “Intel has limited ability to defend server share at any price.”
As a result, the top-rated analyst remains bullish on the stock with a Buy rating and a Street high price target of $200.
Overall, other Wall Street analysts are cautiously optimistic about the stock with a Moderate Buy consensus rating on the stock based on 14 Buys and seven Holds. The average AMD stock prediction is $150.41, implying 40.6% upside potential.
Bottom Line
While analysts are sidelined about Intel and cautiously optimistic about AMD, it does seem that AMD seems to have an edge over Intel right now as INTC battles delayed product launches.
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