Better Semiconductor Stock: Intel vs. Micron Technology

Intel (INTC -0.51%) and Micron Technology (MU 1.33%) both provide essential chips for modern computers and data centers. Intel is the world's top producer of x86 CPUs for PCs and servers, and Micron is a leading supplier of DRAM and NAND memory chips. Both chipmakers manufacture most of their own chips at their internal foundries.

But over the past five years, Intel's stock plunged 55% as Micron's stock soared 137%. Let's see why Micron outperformed Intel by such a wide margin -- and if it's still a better overall investment in the growing semiconductor sector.

Intel faces an existential crisis

Three big blunders caused Intel's recent crisis:

1. It didn't capitalize on its dominance in the PC and server markets to gain a foothold in the mobile chip market.
2. It failed to stay ahead of Taiwan Semiconductor Manufacturing in the process race to manufacture smaller, denser, and more power-efficient chips.
3. It missed the seismic shift toward artificial intelligence (AI) accelerator chips.

As Intel struggled with product delays and chip shortages, many PC makers pivoted toward Advanced Micro Devices, which outsourced its production to TSMC's superior chip foundries. Instead of laying out a clear turnaround strategy, Intel went through jarring strategic shifts under three different CEOs over the past six years.

Intel's current CEO Pat Gelsinger initially believed the chipmaker could expand its foundries to catch up to TSMC by 2025, but the dismal yields for its newest 18A chips indicate it will broadly miss that target. Earlier this year, Intel laid off 15% of its workforce and suspended its dividend. It's also reportedly considering a spin-off or sale of its foundry unit, which would raise a lot of cash but completely reverse Gelsinger's original plans.

For now, Intel is struggling to hold off AMD in the x86 CPU market as it ramps up its production of its lower-margin "AI CPUs" (which add more AI processing features to its chips) to remain relevant in the AI race. However, those chips still can't process AI tasks as rapidly as Nvidia's stand-alone GPUs.

Micron is firing up its cyclical growth engines again

Micron isn't the world's biggest producer of DRAM and NAND chips but develops denser chips than its larger competitors. That technological edge makes it a preferred memory-chip supplier for high-end PCs, servers, and other devices.

Micron's business is more cyclical than Intel's. The memory chip market generally goes through boom-and-bust cycles. The latest bust occurred in 2023 as PC shipments fizzled out, the 5G upgrade cycle for smartphones ended, and many data centers prioritized their purchases of AI-oriented GPUs over new memory chips.

This year, however, a fresh growth cycle kicked off as the PC and smartphone markets stabilized. Data centers also bought more solid-state drives (SSDs) and high-bandwidth memory (HBM) chips to support the demanding needs of new AI applications. Micron expects the AI market's secular expansion to fuel its long-term growth.

Micron faces some competitive pressure from bigger chipmakers like Samsung and SK Hynix. China also banned Micron's chips from its infrastructure projects last year, and it could face more headwinds if the tech war between the U.S. and China intensifies. But Micron doesn't face any existential challenges like Intel and has been steadily led by the same CEO, Sanjay Mehrotra, over the past seven years.

Which chipmaker is the better investment right now?

In 2023, Intel's revenue declined 14% -- representing its second consecutive year of declining revenue -- as its adjusted earnings per share (EPS) plunged 37%. Analysts expect its revenue and adjusted EPS to drop 4% and 75%, respectively, in 2024. Based on those estimates, which could still shift based on Intel's potential divestments of its foundry and non-core businesses, the company's stock still doesn't look like a screaming bargain at 22 times forward earnings.

In fiscal 2023 (which ended last August), Micron's revenue plunged 49%, and the company posted an adjusted net loss as the memory market burned out. But in fiscal 2024, its revenue jumped 62% as it turned profitable again.

For fiscal 2025, analysts expect the company's revenue and adjusted EPS to grow 52% and 585%, respectively, as a new growth cycle begins. Its growth will inevitably cool off again as it laps that recovery, but its stock looks dirt cheap right now at 12 times forward earnings.

Based on these facts, I believe Micron will remain a better buy than Intel for the foreseeable future. Micron is still in the early stages of a new growth cycle, but Intel faces a major crisis that could eventually derail its entire business.