Here's what Intel's terrible results mean for longtime rival and Club holding AMD

Published Fri, Jan 27 20231:26 PM ESTUpdated Fri, Jan 27 20231:58 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

When Advanced Micro Devices (AMD) reports quarterly earnings next week, the Club holding's results should not look nearly as bad as longtime rival Intel 's (INTC) dismal numbers. AMD's quarter is unlikely to be perfect and may even be underwhelming in some areas. The semiconductor market — especially on the personal computer side where both AMD and Intel operate — remains challenged overall. But the magnitude of the Intel's disappointment stems from many company-specific factors, including lost market share to chip peers such as AMD. It's an important distinction that Friday's stock moves seem to reflect. Intel shares fell more than 7%, to under $28 apiece. Meanwhile, AMD shook off minor losses early in the session to climb more than 1% to roughly $76 per share. What the Club thinks To be sure, we are relatively cautious on AMD and believe investors should wait before buying additional shares as reflected by our 2 rating . But this was the case before Intel's worse-than-feared earnings were released after the closing bell Thursday. Before turning more bullish, we want clarity on when AMD's margins will no longer be squeezed by an inventory glut. This multi-quarter, industrywide problem will likely show up in the fourth-quarter results AMD is scheduled to release after Tuesday's close. The company's forward guidance should offer an indication on when the margin pressure will ease. At the same time, the big picture is clear. AMD has taken the upper hand in its rivalry against Intel. Under CEO Lisa Su, the chip designer has built a track record of consistent execution and developed technology that's superior to Intel. It's put AMD in position to be one of the leaders of the semiconductor industry's eventual recovery. AMD INTC 5Y mountain Advanced Micro Devices (AMD) vs. Intel (INTC) stock performance over the past 5 years What Wall Street says about Intel Intel failed to meet analysts' already-low expectations on both fourth-quarter results and guidance, leading to a cascade of critical Wall Street research notes. "We have written the phrase 'Worst earnings report in our history of covering this company' on more than one occasion over the last couple of years. But this time we REALLY mean it," wrote Stacy Rasgon, the noted semiconductor analyst at Bernstein. In the three months ended Dec. 31, Intel earned an adjusted 10 cents per share, compared with an EPS estimate of 20 cents, according to Refinitiv. Revenue fell 32% year over year to $14.04 billion, missing expectations of $14.45 billion. The company's first-quarter forecast was even worse in the minds of analysts. Intel guided to or an adjusted loss of 15 cents per share in the first quarter, when analysts expected earnings of 24 cents, according to Refinitiv. The chipmaker's first-quarter sales estimate of between $10.5 billion and $11.5 billion was far below the $13.93 billion consensus estimate. "While we were braced for a weaker number, and had cut estimates in our preview, the magnitude of the weaker guidance was quite surprising to both us and to investors that we talked to," analysts at Morgan Stanley wrote in a note to clients. Multiple analysts also raised concerns about the sustainability of Intel's dividend at current levels due to the significant amount of cash flow the company is burning. In 2022, Intel paid out $6 billion in dividends to shareholders. On Thursday's post-earnings call, Intel's finance chief, David Zinsner, said the company was "committed to maintaining a competitive dividend. AMD does not pay a dividend. Implications for AMD Morgan Stanley said it believes Intel's results are "cautious" for peers, especially AMD. "To some degree, we do think that Intel's inventory position is higher at customers than peers, and share loss in servers is a factor for them. But this clearly indicates even weaker conditions than we were expecting," the analysts said. "We remain enthused for the year to play out for AMD, and we like the stock longer term -but there is no getting around that this is an anxiety inducing report for them." Bank of America sees Intel's results as "only incrementally negative" for AMD, partially because the analysts believe AMD's inventory correction in the second half of the year was larger than Intel's. This led the analysts to lower their expectations for AMD's first-quarter PC sales already, lowering the risk of a major guidance disappointment like with Intel. Analysts at investment bank Cowen said they expect Intel to continue losing market share to AMD in key parts of the data center and server chip market. AMD's multiyear push into that lucrative market is central to the Club's investment case. "As Intel itself proved for [over a decade], unseating a well-executing incumbent is difficult," the analysts wrote. (Jim Cramer's Charitable Trust is long AMD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Intel Foundry Services will manufacture multiple chips for MediaTek for a range of smart edge devices, the two companies said on Monday.

Fabian Bimmer | Reuters

When Advanced Micro Devices (AMD) reports quarterly earnings next week, the Club holding's results should not look nearly as bad as longtime rival Intel's (INTC) dismal numbers.