Over the past 12 months, shares of the semiconductor maker Advanced Micro Devices (AMD) have blown away its top competitor, and dominant player in the microprocessor space, Intel Corp (INTC). Over the past 12 months, Intel shares have gained around 16.6%, while AMD is up a staggering 130% (the S&P 500 index returned 15.01% over the same period). Why has AMD outperformed its rival by such leaps and bounds? Here, we will look at the two companies' products and company fundamentals to try to explain this differential in returns, and see if such a trend is likely to persist into the future. (For more, see also: Intel Could Finally Reward Unhappy Shareholders.)
AMD vs. Intel: A Brief History
According to industry reports, AMD is currently the second largest supplier of microprocessors in the world, behind Intel. At the same time, AMD is also a leading producer of graphics cards, or GPUs, in fierce competition with Nvidia (NVDA), especially after it completed the acquisition of video card maker ATI in 2006. Intel has pioneered the microchip industry with its like of x86 processors powering PC computers since the 1980s and through today.
Both companies were formed around the same time, nearly 50 years go. Intel was founded in the summer of 1968 in California by Gordon Moore, famous for creating "Moore's Law" and Robert Noyce, co-investor of the integrated circuit. Both were former employees of Fairchild Semiconductor, a pioneer in integrated circuit technology. AMD was founded less than a year later in 1969 by eight former employees of Fairchild Semiconductor. The two companies therefore have a shared lineage and similar origins.
Since then, the two companies have been fierce competitors, both trying to one-up each other with the latest technology and most powerful processors to run the world's computers. Intel soon became the dominant player, with its shares gaining an incredible 29,000% since its IPO in 1978 and May, 2017. AMD, which IPO'd in the same year has seen its shares only grow by 274% over the same period. AMD has been the persistent underdog in the semiconductor space. Why in the past 12 months have these dynamics changed?
AMD vs. Intel: Today's Technology
While historically playing second fiddle, the past 18 months have seen some innovative technology appear from Advanced Micro. The new Ryzen chip is giving Intel a run for its money. Let's take a quick look at how AMD's Ryzen CPUs compare to Intel's latest tech. (For more, see: AMD: Latest Ryzen Chips Attack Intel’s Dominance.)
First, AMD has introduced these high-powered processors at a low price point, lower than Intel's, making them ideal for price-conscious shoppers. According to TechRadar, an AMD Athlon X4 860K, for instance, that boasts a 3.7GHz frequency (4.0GHz with Turbo Boost) can be bought for only $50. The high performance gamer-friendly Ryzen chip is on par in performance to Intel's i7-7700k chip, but comes in at around $150 cheaper. In a world where performance and cost both matter, AMD wins on cost, but Intel still outshines on raw performance. The Ryzen chip has been praised by industry critics, including the blog Ars Technica and Gizmodo.
With the success of the Ryzen chip, it appears that AMD is poised to dominate in today's gaming market. With CPUs as well as a line of high-performance GPU video processors, the company is able to capture the high end of this large and dynamic market at a lower price point for those who are willing to sacrifice a small amount of raw performance in either CPU or GPU capability.
AMD vs. Intel: Fundamentals
With AMD showing some new vigor in its technology and emerging as a real competitor to Intel after decades of second best, it is important to see how these companies are managing their assets and finances. AMD is so far losing money in rolling out its latest product line, losing 0.55 EPS last quarter, and a -7.22% net profit margin in Q2 of 2017. At the same time, Intel boasted a 2.30 EPS and a +20% net profit margin. Intel also pays a 3% dividend yield while AMD does not pay a dividend at all. At first glance, Intel appears to be the stronger company. Intel, with a P/E ratio of 15.3x is 40% lower than the S&P 500's 25x current P/E, making it even more attractive on a relative basis to the broader market. (For related reading, see: AMD Has a 20% Downside According to One Technical Indicator.)
Unless AMD's new chips can blow away Intel's latest—and unless AMD can continue to aggressively challenge Intel, it appears that the recent run-up in AMD shares may have been but a blip on the radar of continued dominance by Intel.