While several chip stocks had compelling performances in 2024, Intel(NASDAQ: INTC) and Advanced Microdevices(NASDAQ:AMD) They were not among them. Intel shares fell about 60% last year, while AMD shares fell about 18%.
Let’s examine which semiconductor stocks appear to be the best candidates to rebound in 2025.
In a semiconductor market driven largely by artificial intelligence (AI)Intel and AMD have largely been left to the afterthought. AMD is the distant number 2 designer of graphic processing units (GPU) behind the market leader NVIDIA. Meanwhile, Intel’s market share in GPUs has dropped to zero, although it wasn’t a very big drop, as the company will only have a 2% market share in PC graphics cards in 2023.
AMD has struggled against Nvidia, largely due to its inferior software. In a recent study, SemiAnalysis called AMD’s out-of-the-box GPUs “unusable” for AI training, noting that it needed “multiple teams of AMD engineers” to help it fix software bugs. However, AMD has been able to carve out a niche in AI inference, and SemiAnalysis says its customers typically use AMD GPUs for limited, well-defined inference use cases.
However, AMD has been able to see strong growth in data centers, although not on the same scale as Nvidia. Last quarter, its data center revenue increased 122% year over year and 25% sequentially to $3.5 billion. The company attributed the sales increase to both its Instinct GPUs and its EPYC central processing units (CPUs).
CPUs act as the brain of a computer, while GPUs have superior processing power. While there is a lot of deserved attention on GPUs, AMD has made a nice jump in the CPU market, noting that it has been gaining share in the server CPU market while also doing well in the PC market.
Overall, AMD saw its third-quarter revenue increase 18% to $6.8 billion and its adjusted EPS increase 31% to $0.92. Therefore, the company has continued to grow well despite the decline in its share price.
Intel, on the other hand, saw its revenue decline last quarter by 6% to $13.3 billion, and its adjusted EPS swung to a loss of -$0.46 versus a profit of $0.41 a year ago. The only bright spot last quarter was its data center and AI segment, which saw revenue rise 9% to $3.3 billion. However, compared to Nvidia and AMD, it is a very modest gain in this segment.
Meanwhile, its largest segment, Client Computing, saw its revenue fall 7% to $7.3 billion. By comparison, AMD saw its Client segment revenue rise 29% last quarter to $1.9 billion, showing that it is making some inroads into Intel’s core PC business.
Perhaps Intel’s biggest problems, however, arise from its Foundry segment, which has been a major drag on its results. The company has invested money in this business through capital expenditures (capex), building new manufacturing facilities. However, the segment has consistently been a big money loser, including an operating loss of $5.8 billion last quarter, or $2.7 billion if a non-cash impairment charge is excluded.
Following the departure of its CEO, Pat Gelsinger, Intel has said it may try to spin off its foundry business. The company recently received $7.86 billion in direct financing and a 25% investment tax credit from the government to continue expanding its U.S. manufacturing footprint.
From a valuation perspective, Intel is the cheaper stock, trading at a forward price-to-earnings (P/E) ratio of 12.6 times versus 17.6 times for AMD.
However, if Intel’s core business and its foundry business are valued separately, its valuation is even more attractive.
Intel’s foundry business has been losing a lot of money, but it also has a lot of physical assets. Intel has spent $68.5 billion on capital expenditures, primarily in the foundry business, since the end of 2021 and has $104 billion in physical assets on its balance sheet. Taking just its recent capital spending and subtracting its $26 billion in net debt, its foundry business would be worth about $10 a share on 4.3 billion shares. It also owns an 88% stake in mobilewhich is worth about $11.4 billion, or $2.66 per Intel share.
So it’s no surprise that the company has been the subject of acquisition rumors. There are many hidden physical assets that are not reflected in its share price, not to mention direct financing and tax incentives from the government.
Meanwhile, AMD has certainly been the stronger of the two businesses, although it hasn’t gotten the investor respect it might deserve. If more AI infrastructure turns toward AI inference, it could be in a good place. Meanwhile, investors should not overlook its CPU business, which has been gaining share in both data centers and PCs.
I like both stocks as recovery candidates this year. I like Intel a little more because of the great value I think there is still in the stock. However, AMD also looks like a solid candidate to bounce back. Fortunately, investors don’t have to choose and can add both stocks to their portfolios if they choose.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Advanced Micro Devices, Intel and Nvidia. The Motley Fool recommends the following options: Short February 2025 calls for $27 on Intel. The Motley Fool has a disclosure policy.
