During the peak of the dot-com bubble in 2000, Intel's (INTC +5.77%) market cap briefly surpassed $500 billion. At the time, its smaller rival AMD (AMD +5.82%) was only worth about $12 billion.
But today Intel has a market cap of just $215 billion, and AMD is worth $130 billion. Let's see why Intel's value tumbled as AMD gradually caught up, and whether or not AMD could eclipse Intel by 2025.
How Intel lost its momentum
At its dot-com peak, Intel was valued at nearly 50 times its 2020 earnings. Today, the stock trades at just 12 times forward earnings, compared to AMD's forward P/E ratio of 35.
The market's enthusiasm for Intel waned as it ceded the CPU market to AMD in the early 2000s. However, AMD spread its resources too thinly after it expanded into the GPU market with its acquisition of ATI in 2006, and it struggled to battle Intel and Nvidia (NVDA +1.66%) across two different markets.
Image source: Getty images.
Intel struck back with new CPUs, and it comfortably controlled 82.5% of the global CPU market by the third quarter of 2016, according to PassMark Software. AMD controlled the remaining 17.5%.
But over the past five years, the tables turned. Intel struggled to maintain its two-year "tick-tock" cycle of shrinking down chips and refining them, and its internal foundry fell behind TSMC (TSM +1.39%) in the "process race" to create smaller and more advanced chips. It repeatedly struggled with delays and shortages, and frustrated OEMs shifted back toward AMD.
AMD spun off its internal foundry as GlobalFoundries in 2009, and became a fabless chipmaker that outsourced its chips to third-party foundries. AMD initially outsourced most if its orders to GlobalFoundries, but eventually switched to TSMC and Samsung's more advanced processes. That decision enabled AMD to produce more advanced chips than Intel, while delivering a stable supply of CPUs and GPUs to OEMs.
As a result, AMD claimed 39.8% of the global CPU market in the third quarter of 2021, according to PassMark, while Intel held a 60% share. That stunning reversal caused AMD's revenue growth to outpace Intel's by a wide margin over the past five years:
Source: YCharts
How Intel plans to catch up
Intel recently renamed its existing processes, doubled down on the expansion of its foundries, and claimed it could catch up to TSMC by 2024 and reclaim the process lead by 2025. Meanwhile, AMD's future will likely remain tethered to TSMC's new processes through 2025.
Therefore, the upcoming battle will be between Intel and TSMC instead of AMD. But even in a best-case scenario, it should take Intel a few more years to manufacture smaller chips than TSMC.
AMD's current CPUs are built with TSMC's 7nm process. Intel's latest chips are built with its own 10nm process, which is comparable to TSMC's 7nm node in terms of density but larger and less power-efficient.
AMD plans to launch its 5nm Zen 4 CPUs in 2022, and those chips could include an integrated RDNA 2 GPU to simultaneously compete against Intel in CPUs and Nvidia in GPUs. Intel will launch its "Intel 7" (formerly 10nm) and "Intel 4" (formerly 7nm) chips in 2022.
Intel believes its "Intel 4" chips will outperform TSMC's 5nm chips (and draw some attention away from exact node sizes), but it has a lousy track record: It previously fumbled its transitions between its "old" 14nm, 10nm, and 7nm nodes. If Intel drops the ball again, it could face more delays, shortages, and market share losses to AMD, which merely needs to rely on TSMC to remain competitive.
How AMD could eclipse Intel by 2025
Analysts expect AMD to grow faster than Intel over the next two years.
|
Metric |
AMD |
AMD |
Intel |
Intel |
|---|---|---|---|---|
|
Revenue Growth |
60% |
16% |
(5%) |
(1%) |
|
EPS Growth |
93% |
23% |
(10%) |
(7%) |
Source: Yahoo Finance, Aug. 27.
We should take those estimates with a grain of salt, but they reflect the current strength of AMD's CPU and GPU businesses, its robust sales of custom APUs for gaming consoles, and Intel's market share losses across the desktop, laptop, and server markets. Intel's earnings will also likely decline as it expands its domestic foundries and develops new chips.
It's difficult to tell what will happen after 2022. Intel might miss its own targets, resulting in more market share losses to AMD, or it could fulfill its goals and strike back at AMD with more powerful chips.
If Intel stumbles and its growth stagnates through 2025, there's a strong chance AMD's growth will accelerate, its stock will more than double, and its market cap will eclipse Intel's. But if Intel's turnaround plans pay off, its stock could rally and make it much more valuable than AMD again.
The bottom line
I'm not sure if AMD will be more valuable than Intel by 2025. However, I believe AMD will remain a superior investment for three reasons: It's led by a visionary CEO who has skillfully boxed Intel into a corner, its business is better diversified across the CPU, GPU, and APU markets, and it wisely relies on TSMC and other foundries instead of manufacturing its own chips.
