The tech industry is booming after facing a sharp downturn in 2022. Advances in artificial intelligence (AI) brought the launch of OpenAI's ChatGPT, forcing countless companies to restructure their businesses to prioritize the generative technology. Excitement over AI has boosted the entire tech market, with the Nasdaq-100 Technology Sector soaring 75% since the start of last year.
Meanwhile, related industries like virtual/augmented reality, cloud computing, automotive, e-commerce, and more are gradually expanding, further fueling growth across tech. As a result, it could be worth dedicating a portion of your holdings to the industry as it expnds.
As leading chipmakers, Intel(NASDAQ: INTC) and Advanced Micro Devices(NASDAQ: AMD) are two attractive investment options. These companies produce the hardware that makes multiple tech sectors possible, with demand for chips only likely to rise as the industry develops.
So, let's compare these two companies and determine whether Intel or AMD is the better tech stock right now.
Intel
Shares in Intel haven't moved much over the past 10 years, rising just 17%. The company has been in a slump, losing market share in central processing units (CPUs) to AMD and ending a partnership over a decade long with Apple. Intel was once the biggest name in chips but grew complacent with its technology, leaving it vulnerable to more innovative competitors.
However, Intel appears to be turning things around, revamping its entire business model. The chipmaker announced last June it would transition to an internal foundry model, which could see it become the biggest semiconductor manufacturer in North America and Europe, rivaling Taiwan Semiconductor Manufacturing.
Intel expects the new model to save between $8 billion and $10 billion by 2025 and help it achieve non-GAAP (adjusted) gross margins of 60%. And the business already appears to be moving in the right direction.
The company posted its first-quarter 2024 earnings on April 25, including sales from its Intel Foundry segment for the first time. During the quarter, revenue for the segment fell 10% year over year to $4 billion. Intel Foundry posted operating losses of $2.5 billion but massively improved on the $7 billion in losses from the previous year.
In addition to a new lineup of AI chips, Intel's stock could be a lucrative long-term option as it overhauls its business.
Advanced Micro Devices
Unlike Intel, AMD's business has exploded over the past decade, with its stock skyrocketing nearly 4,000%. The company's CPU market share rose from 18% in 2017 to 33% this year. Meanwhile, AMD has achieved the second-largest market share in graphics processing units (GPUs), became the exclusive supplier of chips to Sony's PlayStation 5 and Microsoft's Xbox Series X|S in 2020, and is now taking on AI.
AMD posted its Q1 2024 earnings on April 30. Revenue for the quarter rose 2% year over year, beating Wall Street estimates by $20 million. Earnings per share also outperformed expectations by $0.01. That hasn't stopped AMD's stock from slipping 3% since the earnings release. However, the quarter provided plenty to be bullish about for investors in it for the long haul.
Over the past year, AMD has invested heavily in AI, developing GPUs to rival market leader Nvidia's offerings. And the company's focus on the market appears to be paying off. In Q1 2024, AMD's AI-centered data center segment posted revenue gains of 80% year over year, reflecting a spike in AI GPU sales. AMD has attracted big names to its AI chips, with some of its clients including Microsoft, Meta Platforms, and Oracle.
Meanwhile, revenue in its client segment, which includes CPU sales income, increased by 85% to $1.4 billion. The increase represents improvements in the PC market, which could fuel growth in the foreseeable future.
Is Intel or AMD the better tech stock?
Data by YCharts
This chart shows that Intel is undeniably the better-valued stock, with a significantly lower forward price-to-earnings (P/E) and price-to-sales (P/S) ratio than AMD. These are helpful valuation metrics; for both, the lower the figure, the better the value.
However, the question here isn't which stock is the better value but which is the better tech stock. In this case, I'd have to go with AMD. The company has partnerships with companies across the industry, supplying its hardware to various platforms and devices. It also appears to be expanding more quickly in AI.
Meanwhile, AMD's free cash flow of $1 billion compared to Intel's negative $12 billion suggests AMD is in better financial standing. It's true that AMD's shares are trading at a premium compared to Intel, with a significantly higher forward P/E. However, it feels like the more reliable investment option, with a more stable position in the technology sector.
Should you invest $1,000 in Intel right now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Meta Platforms, Microsoft, Nvidia, Oracle, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
