Intel vs. AMD? Analysts prefer one stock for its long-term push in A.I.

Published Thu, May 4 20238:26 PM EDTUpdated Thu, May 4 202310:10 PM EDT

Advanced Micro Devices and Intel compete fiercely in the chip sector. Despite Intel's historic lead in processors, last year — for the first time — AMD surpassed its rival by market capitalization and continues to hold the lead. Both recently reported earnings, with Intel reporting its largest quarterly loss in company history. AMD, meanwhile, saw revenue fall 9% as PC chip sales slid sharply. Both stocks have done well so this year, however. AMD has soared around 26% year-to-date, while Intel is up nearly 18% in the same period. Looking ahead, does one stock have an edge over the other? CNBC Pro takes a look at what Wall Street analysts are saying about the rivals. AMD For Morgan Stanley, AMD is well set up for the second half of this year. "Investors are very skeptical in data center rebounding in 2h, but we have visible line of sight to AMD gaining share of every cloud customer this year," the bank said in a May 3 note. It was also optimistic about AMD's new MI300 graphics chip due to launch later this year. While the bank thinks it will be a relatively small revenue driver next year, the new chip is "really important to the narrative and longer term story" as AMD looks to compete with Nvidia in artificial intelligence. "Overall, then, this is a mixed quarter, but given the selloff we remain positive on the story," Morgan Stanley analysts said, after AMD's stock dropped on guidance that was below expectations. "The businesses that investors focus on — microprocessors and graphics processors for PC and data center — are poised to grow nicely from here, with large 2h snapback potential, with strong product related ramps in every area." Nevertheless, Morgan Stanley, which has an overweight rating on the stock, lowered its price target from $102 to $97, implying around 19% upside. In a May 3 note, Bank of America downgraded AMD to neutral, although that's higher than Intel which it rates underperform. But BofA added: "We continue to like AMD's consistent execution and its breadth of product cycles in attractive compute/AI markets." The bank's analysts said they downgraded AMD due to a weak second-quarter outlook on sluggish market recovery. "While AMD stock could be under pressure near-term, we expect some recovery as the company outlines its AI vision and potential for growth in its unique converged AI (MI300) product," they wrote. According to FactSet, analysts covering AMD give the stock average potential upside of 22%. Intel Morgan Stanley believes that Intel's revenues "have found a bottom," and margins are set to recover in the second half of the year. Still, it noted that the firm is confronted by a year of "minimal" cash generation, material market share challenges, and "fairly limited growth" once its inventory snapback has run out of steam. It gave Intel an equal weight rating, with a $31 price target — minimal upside from its current level. BofA doesn't anticipate a "meaningful" year-on-year recovery for Intel until 2024, adding that its near-term PC outlook will be exacerbated by Intel's price increases. While higher China spending should help demand recover, the issue of elevated inventory for longer will affect Intel disproportionately, versus AMD which outsources its manufacturing, said BofA. The bank gave Intel an underperform rating, with a price target of $25, implying downside of 18%. According to FactSet, analysts covering Intel give the stock average potential upside of just 1.3%. — CNBC's Michael Bloom contributed to this report.