Advanced Micro Devices (AMD), Intel (INTC), and Taiwan Semiconductor Manufacturing (TSM) are major players in the chipmaking and artificial intelligence (AI) segment but have seen varying degrees of success over the past two years — none have experienced Nvidia’s (NVDA) groundbreaking success. Personally, I’m bearish on Intel and TSMC, but I’m bullish on AMD, expecting it to experience continued market share gains and share price appreciation over the medium term.
While AMD is unlikely to reach the heights we’ve seen at Nvidia, the stock could see further supportive trends over the next three to five years. Meanwhile, I’m put off TSMC by its geographical concentration risk and Intel represents too big a risk after years of technological underinvestment.
Let’s start with AMD. The stock has surged over the past two years, but nowhere near as much as Nvidia. However, it’s arguably Nvidia’s biggest competitor in terms of technological capabilities in the fast-growing data center and AI segment. The company is also making significant strides in developing its “full-stack” offering — software to complement the hardware — which could substantially enhance its competitiveness in the AI market.
AMD’s recent acquisition of ZT Systems marks an important step in this full-stack direction, representing its first major foray into comprehensive AI software solutions. This strategic move is expected to improve system-level integration, reduce time-to-market for AI solutions, and expand AMD’s reach into the hyperscale market.
And there’s plenty of market to grow into. That’s because AMD currently holds less than 5% of the GPU market share for AI and around 11% of the overall AI market share (including CPUs). AMD is positioning itself for growth and claims that its EPYC processors and Instinct accelerators offer superior performance for AI inferencing workloads, particularly in data centers.
The problem with AMD is that some fairly considerable growth expectations are already priced in. The stock is currently trading at 44.4x forward earnings and has a price-to-earnings-to-growth (PEG) ratio of 1.08. So, while the company is expected to grow earnings by around 40% annually over the medium term, there’s clearly some downside risk because of the sizeable forward price-to-earnings (P/E) ratio. Still, I’m bullish on AMD.
I’m expecting earnings to surge over the coming years as hyperscalers seek Nvidia alternatives as part of a broader effort to de-risk and expand the supply chain. I understand that the stock is pricey, but I really don’t see these AI-related tailwinds slowing down for AMD.
On TipRanks, AMD comes in as a Strong Buy based on 26 Buys, seven Holds, and zero Sell ratings assigned by Wall Street analysts in the past three months. The average AMD stock price target is $187.04, implying a more than 34.3% upside potential.
Intel has largely missed out on the initial AI boom that has propelled competitors like Nvidia and AMD to new heights in 2024. Nvidia has dominated the market for AI accelerators, and AMD has made significant inroads, but Intel has struggled to gain traction with its AI offerings.
However, while Intel’s chip business may have been falling behind for almost a decade now, Intel may be poised for a recovery in 2025 as it ramps up its AI strategy. The company has been investing heavily in developing new AI-focused products and technologies, as Intel’s upcoming Lunar Lake and Arrow Lake processors are slated for release in late 2024 and early 2025. Both are designed to better support AI workloads on PCs and servers.
The company is targeting over 100 million AI PCs shipped by the end of 2025, which could help it regain market share. Additionally, Intel’s partnership with Amazon’s (AMZN) AWS to build custom AI Fabric Chips and Xeon 6 processors represents a major opportunity in the data center and cloud AI market. It’s a multi-year, multi-billion-dollar deal and could significantly boost Intel’s AI credentials.
However, Intel’s foundry services present both challenges and opportunities. The foundries are currently being consolidated into an independent subsidiary and may play a crucial role in the company’s AI strategy or could be sold — although a buyer might be hard to find.
By attracting more third-party customers for chip manufacturing, Intel could position itself as a key player in the AI hardware ecosystem. However, many of Intel’s production nodes use the company’s proprietary electronic design automation (EDA) tools and flows and are designed for Intel CPUs. That may be something that needs addressing if Intel is to service the wider market more regularly.
On TipRanks, INTC comes in as a Hold based on one Buys, 22 Holds, and seven Sell ratings assigned by analysts in the past three months. The average INTC stock price target is $24.43, implying about 2% downside potential. Personally, and as someone who broadly avoids trying to catch falling knives, I’m bearish on Intel. Of course, a recovery may be in the cards, but it’s not a risk I’d wish to take as an investor.
Interestingly, TSMC has said it won’t be looking to buy Intel’s foundry business despite being one of the few companies in the world with the financial capacity to do so. I say ‘interestingly’ because Intel’s foundries are located all around the world, including in places like Ireland and Israel. Meanwhile, TSMC’s foundries are located predominantly in Taiwan — an island nation claimed by Beijing — creating a degree of concentration risk.
Of course, there are a host of reasons why TSMC wouldn’t buy Intel’s foundries, including the fact that Intel’s nodes will be different from those of the Taiwanese company — as noted above. Moreover, TSMC has its own expansion strategy, which includes notable projects in the United States, Japan, and Europe.
More generally, the company is already well-positioned to benefit from increasing demand for advanced chips in AI, 5G, and high-performance computing applications. TSMC’s continued investment in cutting-edge process technologies should help maintain its competitive edge while benefiting from other companies’ success as a major supplier to firms like Nvidia.
However, geopolitical tensions between China and Taiwan pose a risk to TSMC’s operations, resulting in the stock typically trading at a discount to peers. TSMC currently trades at 27.2x forward earnings, representing a 6.9% premium to the information technology sector as a whole. However, the PEG ratio indicates that, on face value, this stock is undervalued with a ratio of 0.8.
On TipRanks, TSM comes in as a Strong Buy based on five Buys, zero Holds, and zero Sell ratings assigned by analysts in the past three months. The average TSM stock price target is $205, implying about 9.8% upside potential.
Personally, given the existential and geopolitical risks facing Taiwan and TSMC’s operations base, I’m turning bearish on the stock. It’s gone too high for the geopolitical risk in my opinion. I realize that this is a change of tune for me, but at nearly $200 a share, it’s not a risk I’m willing to take.
