Intel vs. Micron Technology: Which semiconductor stock is the best buy?

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intel company (NASDAQ: INTC) and Micron Technology, Inc. (NASDAQ:MU) are both well-known computer chip makers who have a large following on Seeking Alpha. Before that, I wrote 21 articles on Intel and 20 on Micron.

Although they operate in different chip fields, INTC and MU are building their own fabs (FABS). Intel mainly builds CPU and CPU-related chips and Micron mainly builds memory chips.

Both companies have been around for decades, with INTC being founded 53 years ago in 1968 and Micron being founded 43 years ago in 1978. While Intel’s headquarters are in Silicon Valley in Santa Clara CA, MU has was founded and remains in potato country Boise, Idaho. One of MU’s earliest investors was potato billionaire JR Simplot.

As the global chip shortage continues, both companies are making expansion efforts to meet the new demand.

In this article, we will compare the two to determine the best investment choice in the future.

How are Intel and Micron technologies different?

Intel is certainly better known than MU. Who among us hasn’t seen the ubiquitous “Intel Inside” badge dozens or hundreds of times over the past 30 years.

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Intel

Micron, on the other hand, is not as well known to the public but would most likely be found “inside” most computers with “Intel Inside”. Micron not only manufactures RAM (Random Access Memory, but also ROM (Read Only Memory), SSDs (Solid State Drives) among many other memory devices.

Another difference worth noting is simply the sheer size of the two companies. Intel has 110,000 employees and $78 billion in revenue in the last 12 months, while Micron’s comparables are 40,000 employees and $30 billion in revenue. In terms of assets, Intel has $153 billion and Micron $54 billion.

But perhaps more importantly, Micron’s revenue since 2015 has proven to be cyclical while Intel’s has been growing every year.

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Alpha research and author

I wrote about MU cyclicality before “Micron Stock Forecast: Can It Hit $100? Yes The Next Cyclical High Is $120.”.

How do Intel’s and Micron’s key metrics compare?

When you look at the financial metrics of both companies, several things stand out in favor of Intel (red) over Micron (yellow).

The first element is Intel’s huge gross margin advantage (56%) over MU’s 40%, although 40% is also good.

The next two are ratios. Intel sells at a PE ratio of 10.7 and an FCF (Free Cash Flow) ratio of 13.4 against 15.1 and 27.9 respectively for Micron.

So, strictly on a price basis, Intel seems considerably cheaper than Micron.

However, Micron has something rarely seen in large manufacturing companies: they have more cash than long-term debt. This gives Micron a rare negative Debt to EBITDA ratio.

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Alpha research and author

So strictly on a financial basis, you would have to say that Intel seems stronger than Micron, but that’s also true of most companies compared to Intel.

Are INTC and MU Stock good long-term investments?

In a world of chip shortages, Intel and Micron should do well going forward. From your doorbell and garage door opener, to your laptop and car, to 5G and Quantum computers, chips will be needed everywhere.

If each of the 7.4 billion humans on earth only needs 140 chips in their lifetime, that’s a trillion new chips.

So, chipmakers like Intel and Micron are both expected to do well in the coming decade. If we look at the stock price of both companies over the last 5 years, we see something interesting – a big jump in price for MU from the end of 2020 but not much for INTC. Over the 5-year period shown in the chart, MU grew by 338%, while Intel only reached a low 51%, although INTC paid an additional $5.90 in dividends.

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Looking for Alpha

The reason for the price hike is easy to see if you look at Micron’s revenue over the same period, up 43% in less than 12 months.

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What the chart above shows is the cyclical nature of Micron’s business with revenue rising significantly and then falling over the last quarter. As an investor, you should ask yourself, is there another 40% jump in revenue in the near future?

Are INTC or MU stocks the best buy?

When considering the investment merits of Intel and Micron, you need to consider where they currently are versus where they are going. The charts above show that Micron has done extremely well, especially over the past 18 months. The question is whether they can continue revenue growth at the same pace as shown above.

Intel, on the other hand, is showing massive cash flow which should support future growth. But Intel is on a new path of building FABs and manufacturing chips for other third parties. Given that the future appears to need trillions of chips, this should provide Intel with a very profitable long-term revenue stream.

In fact, Intel just announced that it will build 2 FABs worth $20 billion in Columbus, OH. They can expand that to 8 FAB on 2,000 acres. So if 2 FAB cost $20 billion, 8 FAB would probably cost $100 billion with inflation.

It’s an investment league that Micron can’t compete in.

Intel will also be involved in what are essentially two large duopolies, X86 chips with Advanced Micro Devices. (NASDAQ:AMD) and third-party chip production with Taiwan Semiconductor Company (NYSE:TSM).

Then you have the political tailwinds encouraging chip manufacturing here at home, as opposed to Asia, particularly China. This should benefit Intel immensely.

Combine all of these factors and Intel’s much lower price-to-earnings ratio and price-to-free cash flow ratio and I think that right now Intel is the best investment choice, especially if you have a investment horizon of 5 years or more.

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