Sections of Advanced advanced tools (NASDAQ: AMD) and Taiwan Semiconductor Manufacturing (NYSE: TSM) the two have doubled over the past 12 months. AMD surprised investors with strong sales of its CPUs and GPUs. TSMC, the world’s largest contract maker, has benefited from high orders for new contracts.
Both companies benefited from Intel‘s (NASDAQ: INTC) misfortune. Intel’s chip shortage, caused by a difficult jump from 14nm to 10nm chips, has forced PC makers to buy more AMD chips.
Intel’s own furnace fell behind TSMC in the “process race” to create smaller and more power-efficient chips. That tape allowed AMD, which is outsourcing its production to TSMC, to produce advanced chips.
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That’s why AMD and TSMC both outperformed Intel, which has lost more than 10% of its value over the past 12 months, as well as the Philadelphia Semiconductor Index, which came forward nearly 60%. We take a fresh look at the two chipmakers to see which stock is best to buy.
The differences between AMD and TSMC
AMD is a chipless maker that doesn’t make its own chips like Intel. It develops x86 CPUs for PCs and servers, GPUs, and other types of standard chips, but a furnace like TSMC manufactures the chips.
AMD will compete against Intel in the x86 CPU and NVIDIA (NASDAQ: NVDA) in the separate GPU market. AMD controlled 39.8% of the x86 CPU market in the first quarter of 2021, according to PassMark, up from 33.2% a year ago. Intel’s share fell from 66.7% to 60.2%.
AMD is facing a tougher battle against NVIDIA. Its share of the GPU add-in board market fell from 27% to 23% between the third quarter of 2019 and 2020, according to a report from Jon Peddie Research. NVIDIA’s market share grew from 73% to 77%. AMD also makes custom CPUs and GPUs for Sony and Microsoftthe latest game consoles.
TSMC makes chips for many other customers besides AMD, including Apple (NASDAQ: AAPL), Qualcomm, and NVIDIA. 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 the 7nm conventional-gen node. Another 8% came from its 5nm next-gen chips, which came into mass production last year. The rest of TSMC’s revenue came from old chips.
TSMC is the only significant competitor in the high-end furnace market Samsung, which also started making 5nm slits last year. In the low-end market, it competes against smaller and less advanced competitors GlobalFoundries and UMC.
Which chipmaker is growing faster?
AMD revenues rose 4% in fiscal 2019 as adjusted earnings grew 39%. In the first nine months of 2020, its revenue rose 42% year-over-year – with 47% growth in its computer and graphics industry and 31% growth in the enterprise, rooted and semi-rooted industry -use (EESC) – and its modified employment changed 141%.
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AMD attributed that growth to strong sales of the Ryzen CPUs and Radeon GPUs in its computing and graphics sector, with remote work and home-based trends driving sales of new PCs, and healthy demand for its EPYC data center chips in the EESC department. .
Analysts expect AMD’s revenue and earnings to rise 42% and 92%, respectively, for the full year. Next year, they expect revenue and employment to grow 27% and 47%, respectively.
AMD may have a tougher comparison year over year after the epidemic passed, but the basic tails remain strong. Strong sales of the PS5 and Xbox Series X and S consoles could also boost their EESC revenue and delay a decline in its PC-focused CPU and GPU industries.
TSMC’s revenue rose 4% in fiscal 2019, but its earnings decreased 2% while it slowed in a slowdown in the smartphone market. It also started in 2020 when the pandemic disrupted the production of chips for smartphones and connected cars. New restrictions against the Chinese tech giant Huawei, which was responsible for TSMC removing its inner slits, reduced the pain.
Despite these challenges, TSMC’s revenue rose 30% year-over-year in the first nine months of 2020 as orders from major customers such as Apple and Qualcomm flowed in, and earnings go up 64%. Analysts expect revenue and earnings to rise by 36% and 60%, respectively, for the full year.
Next year, analysts expect TSMC’s revenue and earnings to rise 16% and 12%, respectively, as these orders cool. However, new orders from Apple, which are replacing Intel CPUs with their own chips made by TSMC; HPC market growth; and even outside orders from Intel could help analysts’ expectations next year.
The better buy: AMD
AMD and TSMC both remain major long-term investments in the semiconductor market. But AMD is generating stronger growth with fewer moving parts, and its stock is not too expensive at around 50 hours of earnings going forward.
TSMC stock appears to be cheaper at around 30 hours of earnings up front, but it is a broader and more diverse play on the entire sector. Its growth could be exacerbated as softer segments – such as smartphones and auto chips – overtake its growing HPC industry. So I believe AMD is a slightly better buy than TSMC.