Semiconductor giants Intel and Micron both offer intriguing investment opportunities as technology revolutionizes our world. Veteran industry leader Intel provides stability but faces uncertainty amid manufacturing delays and rising competitors. Rapidly growing memory and storage supplier Micron seems poised for massive expansion yet wrestles with deep cyclicality. This analysis will compare them in-depth across all key metrics to determine which chip stock is the better buy today.
Overview of the Semiconductor Titans
Intel ignited the PC revolution in the 1970s by pioneering the microprocessor. Today, Intel remains the semiconductor sales leader thanks to its CPUs powering around 80-90% of the over 300 million PCs shipped annually. However, GPUs for gaming, AI, and autonomous vehicles along with chips for 5G infrastructure and other applications now contribute nearly half of Intel‘s $63 billion in 2022 revenue.
Micron derives over 90% of its $27 billion in 2022 sales from memory and storage chips, including the crucial DRAM and NAND technologies. Its portfolio meets growing demand from smartphones, data centers, autos, and nearly every other electronics category today and tomorrow.
While Intel owns the higher brand recognition and still ships over 2x as many semiconductors annually, Micron generated 38% gross margins over the past decade compared to Intel‘s healthy 62%. Both Utilize cutting-edge process technology and pour billions into R&D – nearly $15 billion for Intel last year and $4 billion for Micron.
Recent Stock and Financial Performance
Intel‘s stock has been hammered falling over 60% since mid-2021 highs last year as growth stalled.
Micron shares have experienced similar carnage, dropping around 55% since early 2021 after surging nearly 500% in the prior five years during a massive memory upcycle.
| Key Metric | Intel | Micron |
|---|---|---|
| 1-Year Revenue Growth | -0.5% | -10.3% |
| 3-Year Revenue CAGR | 0.1% | 12.9% |
| Gross Margin | 49.8% | 42.0% |
| Net Margin | 27.3% | 27.2% |
| P/E Ratio | 7.3x | 8.0x |
| Dividend Yield | 3.5% | 0.7% |
Data sources: Intel and Micron annual filings, Yahoo Finance
This data reveals Intel‘s immense scale advantage with over 2x Micron‘s sales. However, Micron grew significantly faster over the past three years. Intel maintains superior profitability margins thanks to its competitive position. Yet Micron nearly matches Intel‘s bottom line efficiency while sporting a comparable P/E ratio. Intel also pays a much larger dividend.
Competitive Landscapes and Growth Outlooks
Intel faces intensifying competition across several markets as its manufacturing leadership has slipped. Key rival AMD now beats Intel to advanced nodes while capturing over 25% of the crucial data center CPU segment. Nvidia leads the AI acceleration space Intel targets.
However, Intel invested heavily to regain process technology leadership within two years. It‘s also greatly expanding capacity across new nodes and adding dedicated foundry capacity for customers. Management aims to deliver low double-digit sales growth in 2023 amid recovering enterprise and cloud demand. Multi-year EPS growth should substantially outpace revenue gains as operating margins hit 52% by 2025.
Micron competes in the oligopolistic memory and storage markets battling Samsung, SK Hynix, Western Digital and a handful of others. Rising equipment costs now approaching $20 billion per plant creates barriers to entry. Micron invests over 30% of sales into capital expenditures and R&D to maintain technology leadership.
Industry analysts project DRAM and NAND demand growing around 15-20% annually this decade, notably faster than Intel‘s end markets. Micron is also pivoting advanced solutions targeting data centers, autos, industrial IoT whose value should grow up to 3x its bit growth. Management forecasts mid-teens percentage revenue growth through 2025 with EPS nearly doubling by 2024.
Dividend and Buyback Commitment Analysis
Intel has incrementally raised its dividend for nearly two decades straight now while reducing shares outstanding most years. Its current dividend payout ratio sits around 50% with a 3.5% forward yield, providing stable income for shareholders. Intel returned 115% of free cash flow to owners via dividends and buybacks the past half decade.
Micron initiation a dividend in 2012 but keeps payouts low at less than 20% of earnings the past decade. Its paltry 0.7% dividend yield offers virtually no income. However, Micron did return a stellar 140% of free cash flows to shareholders through buybacks from 2018-2022 during strong memory markets. The company seems committed to meaningful capital returns though less consistently than Intel.
| Capital Return Metric | 2016-2022 Total | 2022 Only |
|---|---|---|
| Intel Dividends | $32 billion | $6 billion |
| Intel Buybacks | $39 billion | $8 billion |
| Total | $71 billion | $14 billion |
| Micron Dividends | $4 billion | $560 million |
| Micron Buybacks | $23 billion | $3 billion |
| Total | $27 billion | $3.6 billion |
Data sources: Intel and Micron annual filings
Competitive Position Comparison
Intel falling behind Taiwan Semiconductor (TSMC) and Samsung in leading-edge manufacturing recently enabled competitors to steal share in key segments. However, Intel still shipped over 80% of server CPUs last quarter while supplying around half the total silicon to data centers – its strongest growth market.
Micron stands firmly entrenched as one of the big 3 DRAM and NAND suppliers today alongside Samsung and SK Hynix. It‘s investing aggressively to evolve its memory and storage technology on par with rivals to capitalize on projected strong demand growth. While challenged securing capacity today, supply and Micron‘s bits share should grow over the long run.
| Company | Process Lead | Rank by Segment | Key Markets | Gross Margin |
|---|---|---|---|---|
| Intel | Lagging | #1 Server CPU #1 Client CPU Top 3 Mobile SoC | PCs Servers Client | 62% |
| Micron | On Par | #3 DRAM #4 NAND | Mobile Data Center Auto, Industrial | 42% |
Segment data sources: Trendforce, Omdia
Micron‘s lower margins today and heavy exposure to commodity-like memory chips suggests higher potential for profitability expansion in an upcycle. Meanwhile, Intel‘s ability to retain dominant share in higher value computing markets indicates sturdier competitive position currently.
Growth Drivers, Projections and Potential
Intel‘s growth hinges on executing its integrated device manufacturing (IDM) 2.0 strategy targeting leadership across technology development, manufacturing and foundry services for customers. It invested over $25 billion into 2022 R&D alone while guiding for $27 billion in 2023 capital expenditures. Establishing dedicated foundry capacity for Qualcomm, Amazon and others could substantially boost long-term sales.
Micron similarly invests immense capital into fabrication plants and developing leading-edge memory and storage solutions. It‘s well positioned to provide the crucial DRAM and flash chips enabling advanced technologies from AI to autonomous driving. Micron also continues pivoting towards high-value solutions targeting data center, intelligent edge and automotive markets which could grow up to 3x its baseline bit growth this decade.
| Key Growth Driver | Intel | Micron |
|---|---|---|
| Total Addressable Market Growth | Low to Mid Single Digits | 15-20%+ |
| Revenue Growth Outlook | Around 10% CAGR | Mid to High Teens % |
| EPS Growth Outlook | Over 20% CAGR | High Teens % |
| Margin Expansion Potential | Moderate | Significant |
| Capital Investment | Around $25 billion per year | Around $10 billion per year |
Forecasts sources: Intel and Micron Investor Day Presentations, Goldman Sachs, Morgan Stanley
Micron clearly operates in faster-growing markets while leveraging relatively fixed costs over more bits supplied. It also holds more potential to expand gross margins towards peer levels. However, Intel‘s operative margins already lead the entire semiconductor industry providing immense cash generation potential to fuel future innovations.
Investment Thesis Comparison
Micron offers a higher risk but higher potential reward play on the secular data explosion trend. Despite revenue highly cyclical, its long-term EPS and FCF should grow substantially faster than Intel‘s. While still spending immense capex to expand capacity, Micron‘s leaner cost structure carries high operating leverage, evidenced by its gross margin vaulting from the 20s to 50s this past cycle. Its valuation remains near historic lows around 8x earnings seemingly discounting challenging near term industry dynamics.
Intel represents a value recovery opportunity today for long-term investors. The company clearly lost a step on the manufacturing front, enabling rivals to capture share in key segments. However, Intel still dominates crucial PC and data center CPU markets while pivoting into higher growth opportunities. Its PIDM 2.0 plan clearly carries major execution risk, but should reestablish Intel as an unquestioned leader in process technology, foundry services and multiple silicon markets this decade if successful. Investors must weigh lower but more stable long-term growth against its discounted valuation around 14x normalized earnings and nearly 4% dividend yield.
Final Determination: Lean Towards Intel but Micron Tempts
Based on this comprehensive analysis, Intel currently carries the edge as a core semiconductor holding today based on its reasonable value, prudent capital return program and projected steady high single digit total growth – about average for large tech stocks but with higher income. Its reclaimed manufacturing leadership and customer wins could provide huge optionality. Conservative investors should feel comfortable owning Intel at today‘s levels.
However, patient investors with higher risk tolerance may prefer buying Micron at current lows – its P/E ratio and earnings yields are similarly attractive. The company seemingly faces easier comparisons while riding secular memory and storage growth perhaps faster than any other sub-industry this decade. If management capably navigates periodic gluts and shortages, substantial expansion likely lies ahead. I rate both chip giants as long-term Buys but Micron offers vastly greater risk and reward.
