/Chip%20During%20Rush%20Hour.jpg)
Smartphones. Laptops. Electric vehicles. Internet-enabled devices, like wearables. Home appliances. These are some of the devices we use daily and are essential to our modern way of living.What is the heartbeat of all these devices? What is the one component that makes them tick?Semiconductors. Semiconductors are the lifeblood of any modern technological device.Two companies which occupy a preeminent position presently in the semiconductor industry are Intel (INTC) and Micron Technology (MU).At the current juncture, which among the two is better placed in the semiconductor war? Micron Stock Performed Slightly Better Year-to-DateIntel is a seasoned player which has been operating in the chip space for more than five decades and Micron was established in 1978.
So far in 2023, INTC (INTC) is up 27.9% and MU (MU) is up 28.6%. The appreciation in share price in both stocks can be attributed to the wider rally witnessed in semiconductor stocks in 2023.
However, both stocks are trailing the Nasdaq’s (NDAQ) performance which has shot up 32.5% in 2023.
Examining Intel and Micron's Latest PerformanceRecently, both Intel and Micron witnessed a fall in revenues, coupled with losses and shrinking gross margins.Intel’s revenues for Q12023 came in at $11.7 billion, down 36% from the prior year. Yet, this came in above the analyst estimates of $11.04 billion.However, Intel reported its largest-ever quarterly loss in the company’s history with a GAAP loss of $2.8 billion, compared to a profit of $8.1 billion in the prior year. Yet, the non-GAAP loss of $0.2 billion or 4 cents per share came in narrower than the analyst expectations of a loss of 15 cents per share. An acute global slowdown in the company’s core Personal Computers business can be attributed to the weak results.Meanwhile, Micron’s revenues for Q3 2023 plunged by almost 57% yearly to touch $3.75 billion, while on a GAAP basis, the company reported a net loss of $1.9 billion compared to a profit of $2.63 billion in the previous year. However, the revenues topped the analyst estimates of $3.68 billion and the loss per share of $1.43 also came in narrower than the estimate of a loss of $1.57 per share.
Intel’s guidance for the present quarter is more upbeat when compared to Micron’s. Intel expects to generate revenues of $12 billion (midpoint of its guidance range) in the current quarter which is almost 1.8% above the analyst expectations. Concurrently, Micron expects revenue to be roughly $3.9 billion (midpoint of its guidance range) which is in line with analyst expectations.In spite of the upbeat guidance, Intel’s debt levels and negative free cash flow levels remain a concern. In terms of debt, Intel reported a figure of 48.84 billion on April 1, 2023, up 29.6% from December 31, 2022. And Intel's negative free cash flow of $8.76 billion compares unfavourably to a positive free cash flow of $5.50 billion in the prior year. Although Micron also recorded negative free cash flows for its latest quarterly results at $1.36 billion, it narrowed from the previous year’s figure of $1.81 billion. Micron had a comparatively much slower growth in long-term debt with the figure coming in at $12.99 billion on June 1, 2023, which is up just about 8% from March 2, 2023.
Micron Appears Richly Valued Than Intel
Presently, Intel's valuation seems to be more comfortable than Micron's.In terms of the Price-to-Sales (PS) ratio, Intel stands at 2.49, while the same is more than 54% higher for Micron at 3.84.
Moreover, in terms of EV to Sales (Forward), Intel has a ratio of 3.22. For Micron, the same metric is almost 46% more at 4.69.
Although in terms of the Price to Book (PB) ratio, the gap somewhat narrows, Intel still appears to be undervalued than Micron when a comparison is made based on this metric. While Intel's PB ratio comes in at 1.45, Micron's is at 1.54.Earnings EstimatesAnalysts are expecting better EPS levels for Intel in FY 2024 compared to Micron. With an expectation of an EPS of +$1.19, Intel trumps Micron’s analyst expectations of a loss of -$2.05 per share in FY24:
Analyst Estimates
However, in terms of Wall Street analyst ratings and upside potential from current prices, Micron remains ahead of Intel.The consensus among analysts is that MU is a “Moderate Buy,” and their mean price target is $76, indicating an upside potential of roughly 20% from current levels. Notably, out of 26 analysts tracking the stock, 18 have a “Strong Buy”, 2 have a “Moderate Buy,”, 5 have “Hold” ratings and 1 has a “Strong Sell” rating.
Meanwhile, for INTC, the consensus analyst rating remains a “Hold” with an average price target of $31.77, indicating a downside potential of about 4.6% from current levels. Notably, consensus among analysts ratings is a “Hold” and the mean price target is $31.77, indicating a downside potential of roughly 4.6% from current levels. Notably, out of 30 analysts tracking the stock, 3 have a “Strong Buy”, 2 have a “Moderate Buy,” and 21 have “Hold” ratings.
Final TakeawayChips remain essential for the smooth functioning of modern enterprises and for the wider public. This should bode well for both MU and INTC.However, despite being relatively undervalued compared to Micron, Intel's problems in terms of profitability, widening negative free cash flows and quickly rising debt levels remain a concern. Moreover, Micron's narrowing negative free cash flow levels, sustainable rise in debt and overall analyst outlook of cautious optimism when compared to Intel gives Micron a slight edge in this semiconductor battle in my opinion.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
