Over the past decade-plus, Intel's (INTC) prowess in chip design and manufacturing has enabled it to dominate the PC and server processor markets. Yet in recent years, computing power has bifurcated around the PC, as smartphone adoption has coincided with the rise of cloud computing. Although it missed the boat in smartphone processors, Intel's near monopoly in server central processing units, or CPUs, has allowed the wide-moat chip titan to enjoy stellar profitability amid a declining PC market while riding the cloud wave to substantial growth in its data center group.
However, Intel appears to have a worthy challenger in server CPUs with Advanced Micro Devices (AMD) and its Epyc offering. Although AMD has minimal share today, the combination of Intel's 10-nanometer process technology delays and AMD's upcoming 7-nm Epyc 2 has led the market to anticipate substantial share gains for AMD and the demise of Intel. We strongly disagree with this sentiment and see a compelling opportunity in shares of Intel, while shares of AMD look overvalued.
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Abhinav Davuluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.