Actions of Advanced micro devices (NASDAQ: AMD) and Semiconductor manufacturing in Taiwan (NYSE: TSM) doubled in the last 12 months. AMD dazzled investors with robust sales of its CPUs and GPUs. TSMC, the world’s largest contracted chip maker, has benefited from increased orders for new chips.
Both companies profited from Intelin (NASDAQ: INTC) misfortunes. Intel’s chip shortage, caused by a difficult jump from 14nm to 10nm, prompted PC makers to buy more AMD chips.
Intel’s own foundry also lagged behind TSMC in the “process race” to create smaller, more energy-efficient chips. This flaw allowed AMD, which outsources its chip production to TSMC, to produce more advanced chips.
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That is why AMD and TSMC easily outperformed Intel, which has lost more than 10% of its value in the past 12 months, as well as the Philadelphia Semiconductor benchmark index, which has advanced nearly 60%. Let’s take a look at both chip makers to see which stock is the best buy.
The differences between AMD and TSMC
AMD is a non-factory chip maker that does not make its own chips like Intel. It develops x86 CPUs for PCs and servers, GPUs and other types of custom chips, but a foundry like TSMC manufactures the chips.
AMD competes with Intel in the x86 CPU market and NVIDIA (NASDAQ: NVDA) in the discrete GPU market. AMD controlled 39.8% of the x86 CPU market in the first quarter of 2021, according to PassMark, against 33.2% a year ago. Intel’s share fell from 66.7% to 60.2%.
AMD faces a tougher battle against NVIDIA. Its share of the additional GPU card market fell from 27% to 23% between the third quarters of 2019 and 2020, according to a report by Jon Peddie Research. NVIDIA’s market share has grown from 73% to 77%. AMD also produces custom CPUs and GPUs for Sony and Microsoftthe latest game consoles from.
TSMC produces chips for many customers other than AMD, including Apple (NASDAQ: AAPL), Qualcommand NVIDIA. In the last quarter, it generated 46% of its revenue from smartphone chips, 37% from HPC (high performance computing) chips, 9% from Internet of Things (IoT) chips and the rest from other markets.
In terms of process, 35% of TSMC’s revenue came from its current generation 7nm node. Another 8% came from its next generation 5 nm chips, which went into mass production last year. The rest of TSMC’s revenue came from older chips.
TSMC’s only significant competitor in the high-quality foundry market is Samsung, which also started producing 5 nm chips last year. In the low-cost market, it competes with smaller and less advanced rivals, such as GlobalFoundries and UMC.
Which chip maker is growing faster?
AMD’s revenue increased 4% in fiscal year 2019, as its adjusted earnings grew 39%. In the first nine months of 2020, its revenue increased 42% year-over-year – with a 47% growth in its computing and graphics businesses and a 31% growth in its corporate, embedded and semi-customized (EESC) businesses – and its adjusted profit. increased by 141%.
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AMD attributed this growth to the robust sales of its Ryzen CPUs and Radeon GPUs in its computing and graphics segment, with remote work and stay-at-home trends driving sales of new PCs and healthy demand for its EPYC data center chips in the EESC segment .
Analysts expect AMD’s revenue and earnings to increase 42% and 92%, respectively, for the full year. Next year, they expect their revenue and revenue to grow 27% and 47%, respectively.
AMD may face tougher comparisons year after year after the pandemic passes, but the underlying tail winds remain strong. The strong sales of the PS5 and Xbox Series X and S consoles could also increase its EESC revenue and make up for the slowdown in its PC-oriented CPU and GPU business.
TSMC’s revenue increased 4% in fiscal 2019, but its earnings fell 2% as it struggled with a slowdown in the saturated smartphone market. It also got off to a rough start in 2020, when the pandemic stopped producing chips for smartphones and connected cars. New restrictions against Chinese tech giant Huawei, which relied on TSMC to produce its internal chips, exacerbated the pain.
Despite all these challenges, TSMC’s revenue still increased 30% year-over-year in the first nine months of 2020, as orders from key customers like Apple and Qualcomm flowed, and its earnings increased 64%. Analysts expect their revenue and profit to increase 36% and 60%, respectively, for the entire year.
Next year, analysts expect TSMC’s revenue and earnings to increase 16% and 12%, respectively, as these orders cool. However, new orders from Apple, which is replacing Intel CPUs with its own chips produced by TSMC; the growth of the HPC market; and even third-party orders from Intel can help exceed analysts’ expectations in the coming year.
The best buy: AMD
AMD and TSMC are still major long-term investments in the semiconductor market. But AMD is generating stronger growth with fewer moving parts, and its inventory is not very expensive, about 50 times the future profit.
TSMC’s stock looks cheaper, about 30 times future earnings, but it is a broader and more diversified stock across the industry. Its growth may slow as more flexible segments – such as smartphones and automotive chips – overwhelm its high-growth HPC businesses. Therefore, I believe that AMD is a slightly better purchase than TSMC.