Intel Corporation (NASDAQ:INTC) dominated the CPU chip market for decades by decreasing CPU sizes while increasing output. This created an expensive barrier to entry until silicon microchips got small enough to fit into smartphones.
That’s when Qualcomm, Inc.’s (NASDAQ:QCOM) Snapdragon and Apple processors started their takeover. This leads bullish investors to wonder which is the better investment between Intel vs Qualcomm stock.
Both have a chance to increase revenue in 2021, although they will be in different arenas. Much of Intel’s growth came from its data center revenue, while Qualcomm’s chip business is still its clear flagship revenue driver.
And they’re not even close to the only companies in the chip business. Apple even bought Intel’s wireless modem business for $1 billion in 2019 as it ramps up its own chip business to stop reliance on Qualcomm.
Companies both domestically and overseas are preparing to takeover Qualcomm’s mobile business in the 5G era. But it has no plans of relinquishing its market cap any time soon.
What’s powering each company as the war for microprocessors and other CPU chips ramps up?
Is Intel Stock A Buy?
Intel intrinsic value is $54.08 per share according a discounted cash flow forecast.
Analysts disagree about whether the future for the stock is sunny or gloomy. 20 analysts rate it a Hold, 4 a Sell, and 8 a Buy.
Share prices continued to decline for both Intel and Advanced Micro Devices, Inc. (NASDAQ:AMD) when Microsoft (MSFT) announced its own in-house chip development initiative to power the company’s cloud servers and Surface PCs. Both Apple and Microsoft making this move “in-house” puts Intel at a crossroads.
Third quarter revenue of $18.3 billion is a 4 percent year-over-year decrease from the same quarter in 2019. GAAP earnings per share (EPS) of $1.02 is down 25 percent from the prior year. Still, It had $15.1 billion in free cash flow and paid $4.2 billion in dividends for the quarter.
While Intel stock dragged the Dow Jones Industrial Average (DIA) for most of 2020, its quarterly dividend payments of $0.33 never stopped. This gives it a reasonably attractive 2.78 percent annual dividend yield.
It needs to continue growing its IoT and Data Center businesses to compete with the very technology companies it used to call its partners.
Qualcomm: A Better Growth Stock Than Intel?
Unlike Intel, Qualcomm (QCOM) ended the year on a high note, pushing its market cap near $165 billion with a P/E ratio of 32.07.
Share prices crashed to a 52-week low of $58.00 in March of 2020 amid the surge in pandemic fear before climbing to a historic high of $161.07.
Since then, the QCOM share price deflated but remains almost twice its level from a couple of years earlier. There are several reasons why Qualcomm’s stock recovered better than Intel and is viewed by bulls as the better growth stock.
First is the increased consumer interest in 5G smartphones. All three major carriers spent tens of billions of dollars upgrading their network infrastructure to support the new wireless standard. This pushed Samsung and Apple (AAPL) to start selling 5G phones which still use Qualcomm’s chipsets.
And the company has licensing revenue coming from smartphone sales too. On top of this, its expansion into IoT outpaces Intel’s. You can find its chips in everything from smart speakers to smart lights, smart thermostats, and smart cars.
This doesn’t mean there aren’t companies gunning for Qualcomm’s throne though.
Intel Investors Lack Enthusiasm
Intel’s P/E ratio of 9x is a fraction of the equivalent multiple of competitors like Qualcomm (QCOM) and AMD (AMD). This could be a sign the stock is undervalued, but it’s also a sign that investors simply aren’t enthused. You could find yourself dealing with lackluster price appreciation because of lower trading volumes.
And the market has already spoken – Microsoft joining Apple in launching its own chip business spells gloom for existing microchip manufacturers that don’t have another revenue stream to open.
Moving forward, Intel will need to focus a lot more on its Data Center business, along with IoT applications for its chips. The company still has much of its research and development ambitions focused on quantum computing, which could pay off in a big way but is more of a long-term play.
The company went on a buying spree in 2020, and it’s unclear how well its acquisitions will play out.
It spent $900 million in May on mobility-as-a-service (MaaS) company Moovit, which is essentially a public transit app. And it bought Cnvrg.io, a machine learning platform in its startup stage, in November after an October buy of SigOpt.
Both acquisitions solidify the company’s AI ambitions, but it’s unclear if they will satiate investors still licking their wounds from the beating their holdings took in 2020.
Are Qualcomm Licensing Fees At Risk?
Even Google is rumored to be creating its own chips for its Pixel phones and Chromebooks. This business trend will force Qualcomm to spread into more diversified revenue options over time.
And it doesn’t have the massive data centers, quantum computers, and other advanced technologies Intel has to leverage. This could put Qualcomm at a long-term disadvantage, despite perceived growth in the short term.
As it’s phased out of the most popular selling phones, Qualcomm’s income opportunities could be limited.
Qualcomm Vs Intel Stock: The Bottom Line
Intel and Qualcomm are fighting a new war for microchip supremacy, and one may end up a casualty of a the latest technology bubble burst. What’s clear is more major tech manufacturers are bringing chip production in-house to save on expensive licensing fees. What is less clear is how long either of these companies can hold out.
Qualcomm has the most revenue opportunities over the next few years as its processors are still found in the most popular mobile devices. But it could soon be replaced.
Intel, on the other hand, lost out on the chip wars, but it’s making a comeback in high technologies. Its AI acquisitions, quantum computing assets, and data center footprint are sure to play pivotal roles in its recovery.
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.