Better Chip Stock: Arm Holdings vs. Intel | The Motley Fool (2024)

Arm Holdings (ARM 7.70%) and Intel (INTC 2.53%) are two of the most important chipmakers in the world. Arm is the world's leading designer of mobile CPUs, while Intel is the largest producer of PC and server CPUs.

Arm only licenses its designs to other chipmakers, but Intel is an integrated device manufacturer (IDM) that designs, manufactures, and markets its own chips. Arm's flexible approach and power-efficient designs enabled its top customers -- including Qualcomm, MediaTek, and Apple -- to conquer the smartphone chip market.

Intel, which stubbornly tried to miniaturize its PC-oriented x86 CPUs for mobile devices, failed to keep up with those Arm-based chipmakers.

Arm went public again last September, seven years after it was acquired by SoftBank. It stock has more than tripled from its IPO price of $51 to nearly $160 today. Intel's shares have declined about 20% during the same period. Let's see why Arm outperformed Intel by such a wide margin -- and whether it could remain the better buy for the foreseeable future.

Why did Arm's stock skyrocket?

Arm doesn't face any meaningful competitors in its core market; its dominant chip designs are used in about 99% of all premium smartphones. However, that means Arm's sales ebb and flow with the cyclical demand for new smartphones.

Arm has been designing new chips for the cloud and auto markets, and it expects those higher-growth sectors to gradually curb its dependence on smartphones. It also anticipates the rising demand for its higher-royalty artificial intelligence (AI)-optimized Armv9 chip designs to drive its near-term expansion across the smartphone, cloud, and auto sectors.

Arm's revenue grew 33% in fiscal 2022 (which ended in March of that year) as the 5G market expanded, but dipped 1% in fiscal 2023 as the 5G upgrade cycle cooled off. In fiscal 2024, its revenue rose 21% as the smartphone market stabilized, it expanded its share of the auto and cloud markets, and it licensed more AI-oriented chips.

For fiscal 2025, Arm expects its revenue to grow 18%-27% as its adjusted EPS increases 14%-30%. That acceleration makes it seem like a balanced way to profit from the long-term expansion of the mobile, cloud, and AI markets.

But at $160 per share, Arm already trades for more than 100 times the midpoint of its estimated earnings this year. That frothy valuation suggests there's a bit too much AI hype baked into its price, even though it isn't growing as rapidly as market leaders like Nvidia.

Why did Intel's stock stumble?

Intel still controls 64% of the x86 CPU market, according to PassMark Software, but it has ceded a lot of share to AMDover the past eight years. As Intel struggled to manufacture smaller, denser, and more power-efficient CPUs on its own, AMD outsourced its production to Taiwan Semiconductor Manufacturing. Intel then fell behind TSMC in the process race as it grappled with chip delays and shortages, and AMD pulled ahead with cheaper and more advanced CPUs.

Intel's revenue rose 1% in 2021, but declined 20% in 2022 and dropped another 14% in 2023. That deceleration was caused by sluggish sales of PCs, intense competition from AMD, and the data center market's focus on buying Nvidia's GPUs to process AI tasks instead of upgrading their older CPUs. As Intel faces those tough headwinds, it's trying to upgrade its own foundries to catch up to TSMC, but that costly expansion effort is crushing its operating margins.

That situation seems bleak, but analysts expect Intel's revenue and earnings to increase 3% and 4%, respectively, in 2024 as the PC market stabilizes, it ramps up its shipments of its Meteor Lake chips, and the macro environment improves. The bulls expect Intel's growth to accelerate in 2025 if it finally catches up to TSMC, but its stock isn't a bargain at 29 times forward earnings. It also cut its dividend last year, and its forward yield of 1.6% won't attract any serious income investors.

The better buy: Arm

I'm not a fan of either of these chip stocks right now. But if I had to choose one over the other, I'd pick Arm because it's growing a lot faster, has a wider moat, operates a high-margin business, and doesn't face any existential threats. Intel isn't down for the count yet, but it needs to either catch up with TSMC or go fabless like AMD to impress the bulls again.

Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.

Better Chip Stock: Arm Holdings vs. Intel | The Motley Fool (2024)

FAQs

Better Chip Stock: Arm Holdings vs. Intel | The Motley Fool? ›

But if I had to choose one over the other, I'd pick Arm

Arm
Arm Holdings plc (formerly an acronym for Advanced RISC Machines and originally Acorn RISC Machine) is a British semiconductor and software design company based in Cambridge, England, whose primary business is the design of central processing unit (CPU) cores that implement the ARM architecture family of instruction ...
https://en.wikipedia.org › wiki › Arm_Holdings
because it's growing a lot faster, has a wider moat, operates a high-margin business, and doesn't face any existential threats. Intel isn't down for the count yet, but it needs to either catch up with TSMC or go fabless like AMD to impress the bulls again.

Are ARM and Intel competitors? ›

Arm's main CPU competitors in servers include IBM, Intel and AMD.

Is INTC a buy, sell, or hold? ›

Intel has a consensus rating of Hold which is based on 3 buy ratings, 25 hold ratings and 3 sell ratings.

Is Apple Arm better than Intel? ›

Takeaways. Apple Silicon which is based on ARM architecture, delivers superior power and thermal efficiency compared to Intel's x86 architecture, allowing for fanless designs in MacBook Air. Intel then comes with a strong focus on single-core performance and integrated graphics capabilities, giving higher-frequency CPU ...

Is Arm a threat to Intel? ›

Yet the biggest threat to Intel – seemingly overlooked by Arm shareholders, according to Windsor – is an attempt by Qualcomm to put Windows on Arm chips for laptops. It comes after Apple switched from Intel to internally developed, Arm-based silicon for its own laptop processors.

What stocks are a strong buy right now? ›

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Company (ticker)Analysts' consensus recommendation scoreAnalysts' consensus recommendation
Boston Scientific (BSX)1.47Strong Buy
Micron Technologies (MU)1.47Strong Buy
S&P Global (SPGI)1.48Strong Buy
Targa Resources (TRGP)1.50Strong Buy
19 more rows

What is the target of INTC in 2024? ›

According to our current INTC stock forecast, the value of Intel shares will drop by -1.37% and reach $ 30.80 per share by July 8, 2024.

What will Intel stock be worth in 2025? ›

According to the latest long-term forecast, Intel price will hit $35 by the end of 2024 and then $40 by the middle of 2025. Intel will rise to $50 within the year of 2026, $55 in 2027, $60 in 2028, $65 in 2029, $75 in 2030, $80 in 2031, $85 in 2032, $90 in 2033, $95 in 2035 and $100 in 2036.

Who is Intel's biggest competitor? ›

AMD, short for Advanced Micro Devices, like Intel, produces more than just microprocessors. Both companies create motherboards, servers, and other computer-related hardware. In terms of the x86 microprocessor, AMD is Intel's biggest competitor. Intel and AMD are rivals, much like Apple and Microsoft.

Who is Arms' biggest competitor? ›

The main competitors of ARM include Advanced Micro Devices (AMD), Applied Materials (AMAT), Texas Instruments (TXN), Micron Technology (MU), Intel (INTC), Analog Devices (ADI), NXP Semiconductors (NXPI), Marvell Technology (MRVL), Microchip Technology (MCHP), and Monolithic Power Systems (MPWR).

Is Intel switching to Arm? ›

In addition to the April announcement, in August 2023 the companies announced an agreement to accelerate the development and implementation of Arm-based SoCs on the Intel 10 nanometer process.

What are the differences between Intel and Arm? ›

While Intel makes high-performance processors for personal computers and laptops, Arm primarily makes ARM processors for low-power devices such as smartphones, tablets, wearable tech, and various smart home devices. We must also clarify that Arm is the company, while ARM is the processor.

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