Advanced Micro Devices (NASDAQ:AMD) has been consistently taking market share away from Intel (NASDAQ:INTC) in the x86 central processing unit (CPU) market recently. AMD’s x86 CPU share hit a 14-year high in the second quarter of 2021, thanks to the company’s manufacturing technology advantage. This has helped the company offer robust computing performance at aggressive prices, forcing Intel to resort to price cuts in order to attract customers.
AMD exited the second quarter with 22.5% of the x86 CPU market under its control, up 4.2 percentage points over the year-ago period. The chipmaker could end the year with a bigger chunk of the market, as it’s likely to maintain its technological superiority over Intel for a couple more quarters. However, Intel could start staging a comeback in 2022, thanks to a robust pipeline that includes graphics cards and a brand new processor architecture.
Intel’s graphics cards could be a boon for the notebook business
Intel will be entering the discrete graphics processing unit (GPU) market early next year with the launch of its first-generation Alchemist cards. Chipzilla’s GPUs could help it make a dent in the multibillion-dollar graphics-card market, as they’re expected to pack the latest technology and are set to be manufactured using TSMC‘s 6-nanometer (nm) process node, putting it on par with rivals AMD and Nvidia, both of whom already rely on TSMC’s chip-building services.
However, the Alchemist GPUs could also help boost Intel’s market share and pricing power in the laptop space. According to benchmarks leaked on Twitter, Intel’s high-end gaming graphics cards are likely to find their way inside laptops and notebooks. This would be a smart move on Chipzilla’s part, as gaming laptops are in great demand and also tend to sell at premium price points.
IDC estimates that the gaming-notebook market clocked record growth of 26.9% in 2020, hitting annual shipments of 24 million units. By 2025, annual gaming-notebook shipments are expected to jump to 33.7 million units, recording a compound annual growth rate of 7% for the next five years. It’s also worth noting that the average selling price (ASP) of a gaming notebook stood at $1,041 last year and is expected to remain consistent in 2025, with an estimated ASP of $1,030.
By comparison, a survey of online sales in March last year revealed that laptops had an ASP of $516, which means that Intel will be able to target a higher-margin market with its graphics cards. This will help Intel fix a big problem that it suffered in the second quarter. The company’s notebook ASP dropped 17% year over year in Q2 as it chose to focus on shipping more units.
Intel posted record notebook-processor revenue in the second quarter as shipment volumes increased 40% year over year. In addition, Mercury Research estimates that Intel held 80% of the laptop-processor market in the second quarter, flat from the year-ago period, indicating that it managed to keep AMD in check.
From next year, gaming laptops powered by the Alchemist GPUs — which should carry a premium over vanilla laptops — can start pushing up Intel’s notebook ASPs. This will lead to better margins and stronger revenue from the client-computing group that produced nearly 55% of Intel’s Q2 revenue.
Next-generation processors can help turn the tide against AMD
AMD is expected to release its Zen 4 CPU architecture by the end of 2022. Based on a 5-nanometer manufacturing process, AMD’s new processors would be an upgrade over the current generation chips made using a 7nm node.
This is where AMD has pulled ahead of Intel, as the latter has failed to ramp up the production of its competing 10nm chips to market and lost its technological advantage. The Rocket Lake chips that were launched earlier this year were based on the old 14nm process, which explains AMD’s gains in the CPU market.
Intel, however, is expected to make the switch to the 10nm Alder Lake chips later this year. Management pointed out on the July earnings conference call that they expect to “ship several million units of Alder Lake to customers in the second half.” The Alder Lake chips will be made using the Intel 7 process, which uses a 10nm node. But it’s worth noting that AMD’s 7nm process and Intel’s 10nm process are identical because of comparable transistor densities.
Intel could erase AMD’s technological advantage in CPU manufacturing later this year. More importantly, Intel points out that “Meteor Lake remains on track for production in 2023,” which means that it’s on track to make the jump to the 7-nanometer manufacturing process. Intel’s 7nm process reportedly has a higher peak transistor density than AMD’s 5nm process.
A higher chip density means that transistors are packed together more closely, which means they can do more work in less time while being more power-efficient. As such, Intel investors can look forward to a turnaround in the company’s fortunes from 2022 onward.
Given that Intel is trading at just 12 times trailing earnings, compared to the S&P 500‘s average of over 31, it may be a good idea for investors to start building a long position in this tech stock before the turnaround arrives.
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