Intel Stock vs TSMC Stock: Which Is Best?

Intel vs TSMC Stock: Semiconductors are tiny devices that have had a gigantic impact on powering our modern society.

The “silicon” in “Silicon Valley” comes from the element silicon that is at the heart of every semiconductor, powering computers, laptops, and smartphones. It’s no surprise that 2018 saw the highest ever annual revenues for semiconductors worldwide: $469 billion in total.

Companies that manufacture semiconductor chips are in a strong position to take advantage of this growth – but which one of them is the best investment?

While they aren’t direct competitors, Intel [NASDAQ: INTC] and TSMC [NYSE: TSM] are both juggernauts in the field of semiconductors. If you want to invest in the semiconductor industry, both of these stocks are a good place to get started. But when it comes down to it, should you buy Intel stock or TSMC stock?

Pros and Cons of Investing in Chip Stocks

On the plus side, the semiconductor industry remains a good bet for investors looking for growth potential. Analysts predict that the industry will have a healthy annual growth rate of 6 percent, reaching $503 billion in 2020.

The semiconductor market is fairly consolidated. U.S. companies such as Intel [NASDAQ: INTC], Qualcomm, Micron, and NVIDIA account for half of the industry’s total revenue; the rest of the industry powerhouses are located in Asian countries such as Japan, South Korea, and Taiwan. What’s more, just 9 of the top semiconductor companies are responsible for almost 60 percent of revenues.

Wireless communication, in particular, is expected to drive strong interest in semiconductors in the short and medium term.

The impending rollout of 5G cellular technology is expected to revolutionize the smartphone industry as we know it, providing lightning-quick connection speeds.

In addition, while smartphones have nearly reached market saturation in Western countries like the U.S., they still have substantial room to grow in developing countries such as China, India, and Indonesia.

However, there are also signs that the semiconductor industry is primed for a short-term slowdown, despite its long-term growth prospects.

In Q1 2019, global semiconductor sales dropped by 13 percent year over year. The semiconductor industry often exhibits this cyclical, “feast or famine” behavior, in which years of growth are followed by down years.

Is Intel A Buy?

With all that said, what are the pros and cons of buying Intel stock in particular?

Intel [NASDAQ: INTC] has the largest market capitalization of all semiconductor companies ($265 billion), building chips that power millions of computers worldwide. There are a few good signs, and a few worrying ones, for investors interested in Intel stock.

For one, there are a variety of growth opportunities for Intel’s semiconductors: big data, the Internet of Things, cloud computing, and artificial intelligence, just to name a few. All of these use cases require advanced, high-powered technology that Intel’s chips are capable of powering.

What’s more, Intel [NASDAQ: INTC] has wisely been transitioning its business model from a PC-centric one to a data-centric one.

Rumors of the “death of the PC” have been greatly exaggerated: the company still gets the majority of its revenue from its laptop and desktop business. However, data-centric businesses like the Internet of Things (think self-driving cars) are now responsible for nearly half of Intel’s revenue, and poised to grow further in the future.

Still, there’s also a big warning sign for investors looking at INTC stock. Recently, Intel has been slowly losing its grip on the semiconductor market to its main competitor AMD, with the latter investing heavily in research and development.

Financial services firm Cowen says that AMD’s new “Rome” chip is handily better than Intel’s equivalent Xeon chip.

Should You Invest in TSMC Stock?

TSMC [NYSE: TSM], which stands for Taiwan Semiconductor Manufacturing Company, is the world’s largest semiconductor foundry.

The company’s business model is to build out its manufacturing capabilities to produce chips for the world’s leading chip designers.

Although not a direct competitor to Intel [NASDAQ: INTC], therefore, TSMC’s manufacturing capabilities are indeed used by its direct competitors AMD and NVIDIA.

According to TSMC forecasts, the company’s revenue is expected to grow by 5 and 10 percent annually into the foreseeable future. This is largely thanks to TSMC’s superb ability to execute and deliver on the visions of its many clients, manufacturing everything from smartphone chips to processors in big data centers.

Given that TSMC [NYSE: TSM] is a major supplier of AMD, much of the future performance of TSMC will depend on how the Intel vs AMD war plays out. As it stands now, AMD is gaining ground fast: since the start of 2018, the value of AMD shares have nearly tripled.

Intel Stock vs TSMC Stock: The Bottom Line

In 2017, TSMC [NYSE: TSM] had a larger market value than Intel [NASDAQ: INTC] for the first time, and many analysts are predicting that the Taiwanese company will “dethrone” the market leader.

Both Intel stock and TSMC stock seem like intriguing investments, with potential pros and cons to both options. In this head-to-head comparison, however, we have to give the edge to TSMC for now.

TSMC [NYSE: TSM] has several points in its favor here, including the company’s growth prospects, ability to capitalize on market trends, and even stock dividends. While the semiconductor wars may be never-ending, smart money says that TSMC is the stock to beat.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.