Advanced Micro Devices (AMD), Intel (INTC) and Taiwan Semiconductor Manufacturing (TSM) are major players in the chip manufacturing and artificial intelligence (AI) segments, but have seen mixed success over the past two years – none of them have Nvidia’s ( NVDA ) groundbreaking success. Personally, I’m bearish on Intel and TSMC, but I’m bullish on AMD, expecting the company 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 with Nvidia, the stock could see further supportive trends over the next three to five years. Meanwhile, I’m put off by TSMC due to its geographic concentration risk and Intel represents too much of a risk after years of technological underinvestment.
Let’s start with AMD. The stock has risen dramatically over the past two years, but not nearly as much as Nvidia. However, it may be Nvidia’s biggest competitor in terms of technology capabilities in the fast-growing data center and AI segment. The company is also making significant progress in developing its “full-stack” offering – software that complements the hardware – which could significantly increase its competitiveness in the AI market.
AMD’s recent acquisition of ZT Systems marks an important step in this full-stack direction and represents the first major step toward comprehensive AI software solutions. This strategic move is expected to improve system-level integration, shorten time-to-market for AI solutions and expand AMD’s reach in the hyperscale market.
And there is enough market to grow in. That’s because AMD currently has less than 5% of the AI GPU market share and about 11% of the total AI market share (including CPUs). AMD is positioning itself for growth, claiming that its EPYC processors and Instinct accelerators offer superior performance for AI inference, especially in data centers.
The problem with AMD is that quite a bit of growth expectations have already been priced in. The stock currently trades at 44.4x forward earnings and has a price-to-earnings-growth (PEG) ratio of 1.08. So while the company is expected to grow earnings at around 40% per year over the medium term, there is clearly downside risk due to its significant price-to-earnings (P/E) ratio. Still, I am positive about AMD.
I expect profits to rise in the coming years as hyperscalers look to Nvidia alternatives as part of a broader effort to reduce risk and expand the supply chain. I understand 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 Buy, seven Hold, and zero Sell ratings assigned by Wall Street analysts over the past three months. The average AMD stock price target is $187.04, implying more than 34.3% upside potential.
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Intel largely missed the initial AI boom that propelled competitors like Nvidia and AMD to new heights in 2024. Nvidia has dominated the AI accelerator market, and AMD has made significant progress, but Intel has struggled to gain traction with its AI offerings.
While Intel’s chip business may have been lagging behind for almost a decade now, Intel could be poised for a recovery in 2025 if it ramps up its AI strategy. The company has invested heavily in developing new AI-focused products and technologies, as Intel’s upcoming Lunar Lake and Arrow Lake processors are set to hit the market in late 2024 and early 2025. Both are designed to better support AI workloads on PCs and servers.
The company is targeting more than 100 million AI PCs shipped by the end of 2025, which could help the company 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 combined into an independent subsidiary and could play a crucial role in the company’s AI strategy, or could be sold – although a buyer may be difficult to find.
By attracting more external customers for chip production, Intel could position itself as a major player in the AI hardware ecosystem. However, many Intel production nodes use the company’s own EDA (Electronic Design Automation) tools and flows and are designed for Intel CPUs. That may be something that needs to be addressed if Intel wants to serve the broader market more regularly.
On TipRanks, INTC comes in as a Hold based on one Buys, 22 Holds, and seven Sell ratings assigned by analysts over the past three months. INTC’s average price target is $24.43, implying around 2% downside potential. Personally, and as someone who generally avoids catching falling knives, I’m bearish on Intel. Of course, a recovery could be on the horizon, but it’s not a risk I would want to take as an investor.
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Interestingly, TSMC has said that it has no plans to acquire Intel’s foundry business, despite being one of the few companies in the world with the financial capacity to do so. I say “interesting” because Intel’s foundries are located all over the world, including in places like Ireland and Israel. Meanwhile, TSMC’s foundries are mainly located in Taiwan – an island nation claimed by Beijing – which poses some concentration risk.
Of course, there are plenty of reasons why TSMC wouldn’t buy Intel’s foundries, including the fact that Intel’s nodes will be different from the Taiwanese company’s – as mentioned above. Moreover, TSMC has its own expansion strategy, which includes notable projects in the United States, Japan and Europe.
More broadly, 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 investments in advanced process technologies should help it maintain its competitive advantage while capitalizing on other companies’ success as a key supplier to companies like Nvidia.
However, geopolitical tensions between China and Taiwan pose a risk to TSMC’s business, causing its shares to generally trade at a discount to peers. TSMC currently trades at a forward upside of 27.2x, which represents a 6.9% premium to the information technology sector as a whole. However, the PEG ratio indicates that this stock is undervalued at first glance with a ratio of 0.8.
On TipRanks, TSM comes in as a Strong Buy based on five Buy, zero Hold, and zero Sell ratings assigned by analysts over the past three months. TSM’s average price target is $205, implying around 9.8% upside potential.
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Personally, given the existential and geopolitical risks facing Taiwan and TSMC’s operating base, I am bearish on the stock. In my opinion it has become too high for the geopolitical risk. I realize this is a change of tune for me, but at almost $200 per share, it’s not a risk I’m willing to take.
