Better Buy: Advanced Micro Devices (AMD) vs. Taiwan Semiconductor (TSMC)

Which hot chipmaker is the better buy for 2021?

The Motley Fool
Date: Jan 13, 2021
By: Leo Sun


Shares of Advanced Micro Devices (NASDAQ:AMD) and Taiwan Semiconductor Manufacturing (NYSE:TSM) have both doubled over the past 12 months. AMD dazzled investors with robust sales of its CPUs and GPUs. TSMC, the world's largest contract chipmaker, benefited from soaring orders for new chips.

Both companies profited from Intel's (NASDAQ:INTC) misfortunes. Intel's chip shortage, which was caused by a difficult jump from 14nm to 10nm chips, caused PC makers to buy more AMD chips.

Intel's own foundry also fell behind TSMC in the "process race" to create smaller and more power-efficient chips. That failure allowed AMD, which outsources its chip production to TSMC, to produce more advanced chips.

That's why AMD and TSMC both easily outperformed Intel, which lost more than 10% of its value over the past 12 months, as well as the benchmark Philadelphia Semiconductor Index, which advanced nearly 60%. Let's take a fresh look at both chipmakers to see which stock is the better buy.

The differences between AMD and TSMC

AMD is a fabless chipmaker that doesn't manufacture its own chips like Intel. It develops x86 CPUs for PCs and servers, GPUs, and other types of custom chips, but a foundry like TSMC manufactures the chips.

AMD competes against Intel in the x86 CPU market and NVIDIA (NASDAQ:NVDA) in the discrete GPU market. AMD controlled 39.8% of the x86 CPU market in the first quarter of 2021, according to PassMark, up from 33.2% a year ago. Intel's share tumbled from 66.7% to 60.2%.

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