Intel and AMD are major players in the CPU chip industry for personal computers, but demand for PCs is influenced by economic cycles due to their status as durable goods. During difficult times, consumers may postpone or reduce purchases of durable goods, such as PCs. If the existing computer is still functional, albeit slower or outdated, individuals may delay upgrading to save money.
Intel and AMD’s quarterly results reflected this trend, with the PC segment being a significant drag on their performance.
The decline in revenue from the PC CPU segment was the primary driver of the drop in performance for both Intel and AMD. This segment contributed more than 60% and 30% of the revenue for Intel and AMD, respectively. Intel saw a revenue drop of 38%, while AMD was down by 65%, which was a significant factor in the companies’ overall decline.
Intel reported its biggest quarterly loss ever, with revenue declining by 36% compared to the previous year. However, the company’s share price remained stable, as analysts had predicted an even greater loss.
AMD wasn’t as lucky as its share price tanked 9% after the earnings release. Its revenue dropped 9% and it swung to a loss too. The decline in share price was likely caused by lower-than-expected guidance for Q2 revenue, indicating that the recovery may take longer than anticipated.
In contrast, AMD’s results showed more strength as they had other segments that experienced growth, whereas Intel saw declines in all their segments except for Mobileye, an autonomous driving unit they acquired six years ago. However, Mobileye’s revenue of $458 million was not substantial enough to offset Intel’s total revenue of $11.7 billion.
In addition to competing with AMD, Intel also faces an existential challenge in a world where a growing number of chips are adopting the energy-efficient ARM architecture and being designed by fabless chip companies.
Intel follows a vertically integrated model where it designs and manufactures its chips, whereas its competitors such as AMD are chip designers and rely on fabs like TSMC for manufacturing. This specialization has led to more innovation and better products for AMD and others. However, Intel has been slow to adapt to this approach and is now in a permanent decline.
AMD, although in a better position than Intel, is still playing a secondary role. It continues to trail behind Intel in the PC CPU chip market and is behind Nvidia in standalone GPUs.
In the last quarter, AMD’s PC CPU chip revenue amounted to only $739m, whereas Intel’s revenue in the same segment was significantly higher at $5.4b. The gap is unlikely to close soon.
Nvidia is slated to release its Q1 earnings on May 24, 2023, so a comparison with AMD’s Q4 results is the only available option for now. Excluding the PC CPU segment, AMD recorded a revenue of $4.7b in the last quarter, while Nvidia raked in $6.1b. The difference between the two companies is narrower in this case.
But when it comes to market capitalization, Nvidia’s $686 billion is over five times larger than AMD’s $131 billion. While it is reasonable for Nvidia to trade at a premium over AMD, the current gap between the two companies seems too significant.
While Nvidia’s GPUs are superior to AMD’s for AI computing, the company’s Price-to-Sales ratio of 25x is significantly higher than AMD’s ratio of 6x. As someone who typically favors investing in market leaders, I believe that the current hype around AI has led to Nvidia being overvalued. As a result, AMD may be a more attractive investment opportunity at the moment.
