INTC - Overvalued company posed for a steady decline?

These are just some of my thoughts of the two big players in the semiconductor industry of Intel ($INTC) and AMD ($AMD) and how the next six to nine months could potentially shake out.

Note: This section is not required to read but just gives a glimpse into why I decided to look into this and leveraging some of the information I have gathered for the past few months and just overall pc tech information over the past many years

Personal Side Note: (My personal reasoning/motivation for looking into this)

I consider myself a semi-tech enthusiast who has been interested in the PC/tech industry for the past 15 years or so. I follow the mainstream consumer tech products from the three powerhouses of Intel, Amd, and Nvidia pretty closely as I also like to build my own computers and also game. Because I am avidly into building computers for myself, family, friends and I also used to do this as a side job, I am quite heavily invested into learning about parts, performance, prices and trends. On the PC desktop/laptop front, Team Blue (Intel) and Team Red (AMD) have always been fierce competitors.

Minor Background: (Also not necessary to read but giving this to provide some context as to why I hold such thoughts about AMD and Intel)

AMD pre-2008 has not put up much of a big fight against Intel in terms of consumer grade CPUs. From 2008 to about 2015, Intel was able to milk quad core performance without having to make any massive/significant strides in upgrades.

While in 2017 with the launch of Kaby Lake Intel finally pushed up the typical core counts from 4 to 6, there still was not much of a massive breakthrough in terms of technology or processes. Amd simply did not pose enough of a challenge with enough generational improvements/ipc changes to force Intel to really innovate. This led to probably one of Intel’s big notable flops in Rocket Lake aka 11th Gen where even the new products were barely able to outperform the previous gen and in some cases its performance was worse.

Now 2017 was the beginning period of when AMD slowly started to turn things around with their launch of Ryzen “Zen” architecture. While Intel continued to really rest of its previous laurels and would launch new product in the typical 2 year cycle with a few % pt bump in performance just so it could continue to market itself as the best performing products in the market, AMD continued to make massive strides in their lineups with big double digit IPC uplifts.

This finally leads to 2021 when Intel finally realizing that AMD’s improvements were now nearly on par with them released their 12th gen (Alder Lake) that provided great generational uplift vs its previous 11th gen (aka Rocket Lake). Intel could no longer get by releasing products with minor bumps in performance and successfully compete with AMD not only in terms of performance but also in terms of value.

Thus, now we have come to 2023 where Intel is now on 14th gen Raptor Lake “Refresh” vs AMD’s Ryzen Zen 4.

Minor Background End

Now here are some figures to consider. I tried to pull numbers to try to compare as closely from an apples to apples comparison.

Intel (INTC)

AMD

In terms of size/revenue, obviously Intel is a behemoth when compared to AMD but the two things I want to really focus on are two main segments of CCG (Client Computing Group) aka Desktop/Laptops and Data Center.

Also I would like to point this out. If you read through some of the minor background a quick TLDR (too long didn’t read) is that Intel has been resting on its laurels for quite some time. Instead of being innovative, they merely tried to milk the cash cow with barely any improvements. However, this has finally started to catch up on them and because of their lack of innovation and delays, they are now behind the eight ball. As a result, they are now forced to play their size/pricing as a way to compete and push down competition from AMD. So instead of making better products to directly compete, they are just going to sell alot more products aka massive supply forcing prices to go down even though products are inferior and thus at certain product stack segments where price sensitivity is high Intel will maintain market share.

Shorter TLDR: Push tons of supply leading to major drop in prices. While competitor product is better, due to higher price, the inferior product is sold more.

This sort of behavior started end of 2021 and into 2022. Which is why at electronics retailers you could see massive discounts not only on 11th gen but also 12th gen products.

So if you see this situation on a larger scale, you see Intel starting to fall behind in innovation/technology in their product stack to AMD in the consumer grade and even server grade products. To remain competitive they are over-shipping products and slashing prices to remain competitive. Because Intel is so much more massive compared to AMD, they are able to do so. However, that is to their detriment of revenue/profits/margins, etc…

This problem now continues to go on in 2023 going into 2024. As mentioned previously, Intel’s new generation of chips the 14th Gen is nothing innovative vs the 13th Gen. It is merely a ctrl c ctrl v with minor software tweaks with the hot word “ai”.

Also in Intel’s 12 > 13 > 14 gen changes, their improvements in performance came at a massive detriment to their efficiency. While not as majorly impactful in the consumer side, it is a major issue in the server side.

With the lack of innovation in their 14th Gen, their sales are poor and because they are marketing 14th gen as new thing to buy and the 13th gen now gets a price cut even though performance wise they are essentially identical.

So Dec 14th 2023 is when Intel launched their 14th Gen lineup. Intel’s 15th Gen is expected to launch late 2024 if not H125.

Intel’s 14th Gen lineup for the most part is behind AMD’s own Zen4. With Zen5 coming in H124 and early leaks/rumors showing that Arrow Lake still might not really compete with Zen5 even with Intel trying hard to pull up its release date, the struggles at Intel I think will only continue.

Laptop OEMs such as Dell, HP, Lenovo, Asus, Acer, etc… have hinted that they may really start a significant shift with using far more AMD products in their lineups vs Intel due to not only performance but also efficiency issues.

CCG revenue is a 50%+ impact for Intel which is major part of their revenue.

Similar situation applies to the server side situation with Intel Xeon Sapphire Rapids vs AMD’s Bergamo lineup. Intel’s next gen of Sierra Rapids won’t be out for at least a full year. And unlike for the consumer grade deskptop/laptop chips, Intel can’t brute force their way with added performance by cranking up more power.

The biggest issue is really execution on AMD’s part. Amd is a much smaller company in terms of the amount of chips that it ships and Intel can continue to leverage their economies of scale/production capacity to smother Amd. However, I think that after nearly 2 years of doing so and looking at Intel’s financials, Intel will be hard pressed by its shareholders to continue this path.

Now there are a few areas that I did not cover in this analysis due to partly some lack of time, lack of information/knowledge.

For example what was not covered is Intel and their foundry services. While Intel continues to build our their foundries, that could serve as a major positive point to bottom line revenue. IFS has been making notable improvements quarter after quarter.

Also missing from AMD’s analysis is their GPU lineup. While it would not be much of a comparison to do Intel vs AMD for the GPUs, AMD’s Gaming division which houses their GPU revenues is also nearly a quarter of their revenue. Nvidia’s dominance in this sector and continued dominance could pose a threat.

There are a few more things I still haven’t added but hope to add by next weekend but these are just some of my thoughts for Intel and AMD.

Now the reason for bringing this information up is a specific catalyst that I am potentially eyeing at.

CES 2024 is from Jan 9 - 12. Leaks have already come out from board partners for AMD about AMD 8000 APUs being added with a scheduled Jan release. Meaning that CES 2024 would be the perfect time for AMD to come out with news of their upcoming release. This could move the needle furthermore in terms of notebook/mobile unit sales with AMD’s rising dominance in performance and efficiency vs its Intel counterpart.

So to end my initial thoughts, the quick and short is this.

I am bearish on Intel going into first half of 2024. I think that their CCG sales are going to continue to decline and Data center revenue will also continue to decline as Intel loses market share more and more to AMD. Intel will be either forced to continue their attrition tactics of over shipping parts in order to remain competitive via price but at expensive of profit margins which have been greatly shrinking.

With expensive R&D costs for their future innovations and CapEx, I don’t think Intel can really afford to take that path, thus I see AMD rising up from Intel’s fall.

I will be looking at charts to look at shorting Intel stock at key levels and look at semi short dated AMD call options to play for the CES news announcement.

As mentioned before, I will have more updates to follow and more new clips and some added video/podcasts to link for my sources.

Posting this now so that perhaps we can get some traction and get some other opinions and thoughts to see if my thoughts of CES event could indeed be a playable catalyst.

4 Likes

Thank you for putting together this wonderfully detailed writeup! Very pursuasive story on why they are a short.

Am curious, too, to see when a good time for a short entry would be, as it isn’t doing too badly on a 1M, 3M, 6M and 1Y timeframe, especially compared to QQQ.

Excellent write up and analysis, thanks Shadow! As a old-school AMD fanboy it’s exciting to think about the potential increased adoption of AMD products buy the “pre-built” companies. One word of caution, I distinctly remember juangomez successfully playing CES to the short side on AMD as a “sell the news” type play in Jan of '22. Perhaps the best way to play this is as you indicated, “buy the hype” going into CES and hopefully have a profitable trade in the books beforehand. <:pepepray:930324508018106448>

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I heard something about a foundry event in a month for INTC

what do you know about it? <@256925347549806592>

Possibly Feb 21image

possibly semis and chips go up more on Monday?

news is from yesterday, doesn’t seem to be a rehash of previous news

Slowly catching up on the earnings calls and earnings releases from both companies but atm there are a few points to highlight which are more over-arching points for the next two earnings.

AMD is continuing to grow its Data Center revenue and its margins are back to improving back to previous years. If it can maintain that 30% is profit margin that will serve AMD very well. (earlier in the yr the first 3Qs it was close to 15% and this last Q they were nearly 30%).

This on the other hand will continue to damper INTC and their Data Center revenue. While once again INTC does have a major lead in market share, AMD is continuing to chip at its lead and will continue to do so.

While Intel did well in improvements with their Emerald Rapids release, it is still falling behind AMDs Genoa, Bergamo, Sienna. Now with AMD saying that the EPYC Turin is on schedule to release sometime this year, that will continue to put some major pressure on Intel.

So for the next 9-12 months, AMD will undoubtably have the edge in the server/data center side.

Now on the client side there is some potential bad news coming for AMD. While it isn’t crushing it is negative. AMD was rumored to be launching their new Zen5/AMD 800 chipset sometime near the end of the 1H of 2024 however this is seemingly going to be delayed more towards middle 2H of 2024. While the architecture improvements with the new generation vs what Intel can spring up isn’t worrisome on the AMD side, the delay does give Intel some room to relax as it was getting their asses handed to them in terms of value/performance.

One other facet that I did not cover in depth last time because it slipped my mind since there wasn’t much movement but there is a separate gaming side to consider. AMD’s gaming side besides its discrete GPUs would be handhelds. Much of the portable handheld and other gaming devices are powered by AMD CPUs.

While AMD has locked up the Sony contract to produce chips for the PS6, Xbox is apparently still in the works of trying to finalize a supplier and AMD has not locked it down. Intel is making a serious effort to win this contract and help keep the lights on their fabs.

So while the Xbox contract is not massive, if Intel is able to land this and make headway into other mobile/handheld devices it would be a great benefit to them. So while not an immediate thing, this is news that I would be on the look out for.

Also in terms of discrete GPUs, Nvidia launched back at AMD with their 4000 series Super cards which put some serious pressure on AMD. NVDA seemingly is betting on the higher end and forcing AMD to continue to slash prices and cut into their margins to compete with Nvidia. Also with AMD also giving up the upper end for the next generation it will be interesting to see how things shape up.

AMD is betting more on the low end/budget to mid tier as it believes affordability will be more crucial as potential consumer spending will continue to decline in the gaming sector. ($1000-$2500 GPUs are a pretty tough pill to swallow for many consumers but if you consider it like a luxury good, it may continue to sell without too much of a bottom line impact).

So TLDR for me is that post Jan 2024, both companies are semi propped up by the tech/ai boom, especially Nvidia. However, AMD seems to be propped up a bit more than Intel in terms of the AI boom imo. While both companies face some serious headwinds I think that AMD could be in for some more stiff competition. CCG wise the major advantage gap they have over Intel will be shrinking with the next gen. Gaming wise Intel is making moves to put more pressure on the mobile gaming/handheld side. Not to mention Intel hasn’t abandoned its own division of GPU with their Arc series which would put pressure for the low end while NVDA puts major pressure on the high end. The only saving grace would be their continued dominance in the data center portion.

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