Goldman's Chipmaker Pair Trade: Sell Intel, Not AMD

Intel Corporation INTC's continued struggles with its 10nm process technology warrant a bearish stance on the stock and an upgrade for competitor Advanced Micro Devices, Inc. AMD, according to Goldman Sachs.

The Analyst

Goldman Sachs' Toshiya Hari downgraded Intel from Neutral to Sell with a price with a price target lowered from $49 to $44.

The analyst upgraded AMD's stock rating from Sell to Neutral with a price target lifted from $13.25 to $21.

Intel Losing Product Advantage 

Intel first introduced its 14nm node in 2014 — a successful product — but the chipmaker has pushed back its 10nm node launch multiple times, Hari said in the downgrade note. (See the analyst's track record here.) 

Most recently, Intel delayed the ramp of its node to the back half of 2019, when it expects to launch its 10nm client products, but 10nm data centers are unlikely to launch prior to late 2020, the analyst said. 

Intel's launch timeline represents a competitive risk moving forward, Hari said. Even if investors assume Taiwan Semiconductor Mfg. Co. Ltd. TSM's 7nm process is on par with Intel's 10nm process by 2020, it will imply an "even playing field," which marks a historical reversal from Intel's past product advantage, the analyst said.  

Related Link: 'It's Hard For The Stock To Work,' Barclays Says Of Intel In Downgrade

AMD On Even Playing Field

Intel's disappearing "manufacturing excellence" makes it difficult to justify a bearish stance on rival AMD, Hari said in a separate upgrade note. AMD should be able to capitalize on Intel's near-term woes to gain market share in both client (desktop and notebook PC) CPUs and the more attractive server CPU market, he said. 

AMD deserves credit for successfully launching multiple successful product lines, including Ryzen processors and EPYC server processors, Hari said. The execution of the launches were vital in increasing investor confidence in the smaller company's ability to compete with industry giant Intel, he said. 

AMD erased another bear component by beating consensus estimates for 11 straight quarters after a series of concerning misses in 2014 and 2015, the analyst said. Over the same time period, AMD's margins improved from 23 percent in the third quarter of 2015 to 37 percent in the second quarter of 2018. AMD should be able to incrementally improve gross margins to 42 percent by 2020, Hari said. 

While AMD has performed well over the past two years, the competitive landscape remains "challenging" for the company, as it needs to compete not only with Intel but the much larger Nvidia Corporation NVDA, which has much deeper pockets, Hari said. This implies a bullish stance on AMD's stock is not yet warranted, he said. 

Price Action

Intel shares were slipping 2.55 percent to $48.86 at the time of publication Friday, while AMD was trading up 0.21 percent to $19.14. 

Related Link: Barclays: The Market Believes AMD Is Gaining On Intel