Should Intel Worry About AMD?

Shares of Advanced Micro Devices (AMD) went up 11.5% after Google (NASDAQ:GOOG) (NASDAQ:GOOGL) confirmed that AMD will power Stadia's graphics rendering in the cloud, where Morgan Stanley estimated that AMD had $50 Million in cloud-gaming revenue in Q4. This deal makes a big win for AMD in the gaming space, where AMD rivals the biggest player Nvidia (NVDA) in graphics cards. On the other hand, Intel (INTC) and AMD share prices have been moving as if there is a zero-sum gain between the two in the CPU space. The prevailing view is that Intel and AMD split the CPU market. The equivalence between market share changes and stock movements rests on the premise that Intel and AMD are in a market with a fixed size. Thus, one's gain is the other's loss. However, a zero-sum gain in market share is not automatically equivalent to a zero-sum gain in stock price changes. When the CPU market grows over time, every participant will benefit from the industry growth, albeit at a different magnitude. In this post, I will show that while AMD shares may have gained over 100% in 2018 due to the market share gain over Intel, Intel shares are more sensitive to total revenue growth than to its market share losses to AMD.

Stock market seems to have a fixation on the notion of market share. As Intel is 10 times bigger than AMD, the same change in revenue will register a larger market share change for the smaller AMD and its share price has been more sensitive to the market share changes. Since the launch of AMD's Ryzen, Threadripper, and EYPC, Intel has been steadily losing market shares to AMD in all fronts. In Figure 1A, Intel's PC revenue share decreased from 95.3% Q3 2017 to 94.2% Q3 2018. A similar recent decrease can be verified across all applications (Figure 1B-Figure 1E). Clearly, Intel has made market share advances in both revenue and unit shipment for mobile, desktop, and server end users. Although IDC data stopped at Q3 2018, I should point out that AMD's estimated revenue and unit sold in all segments are expected to have a marked decrease in 1H 2019 due to the fallout of crypto-related demand (Figure 2). As for the most watched and profitable server segment, thanks EPYC's Naples and Rome to come, AMD's market share finally broke zeros and rose to 1.5% in Q3 and 3.2% in Q4 2018 (Figure 1D).

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