Intel vs. TSMC: Which is the Better Semiconductor Stock to Buy Right Now?

The current AI boom is propelling many technology stocks into the stratosphere, and two leading semiconductor companies garnering significant investor attention are Intel (NASDAQ: INTC) and Taiwan Semiconductor Manufacturing (NYSE: TSM). Intel's stock has soared 535% over the past year, while TSMC, as it is better known, shares have jumped 110%, as of this writing.

With both companies benefiting from AI and from the expanding need for semiconductors in devices, which is the better one to buy right now? Let's take a look.

Image source: Getty Images.

The case for Intel stock

Intel's shares have been accelerating for a couple of reasons, including a flurry of semiconductor manufacturing deals with large tech companies and an emerging view that artificial intelligence processing may soon be more dependent on CPUs.

Intel can seemingly do no wrong with its dealmaking lately, with the U.S. government taking a 10% stake in the company, Intel signing new deals to build processors for Space Exploration Technologies (SpaceX) and Tesla's Terrafab data center project, and Alphabet using Intel's CPUs for its AI data centers.

The most recent news sparking investors' optimism comes from President Trump saying that Apple had agreed to buy some semiconductors from Intel. Some analysts think Apple will first buy processors from Intel for its Mac computers and eventually for its iPhones.

Neither company has commented on a potential deal, and it could be several years before Intel begins supplying processors to Apple because of the long timelines for most semiconductor manufacturing agreements.

Part of the hype around Intel is that tech companies are realizing that some of the AI processing performed by their models is most efficiently handled by CPUs rather than GPUs.

For much of the AI boom thus far, GPUs made by Nvidia have reigned as king. But even Nvidia has identified the rise of AI CPUs as a potentially large market, saying it could be worth up to $200 billion.

With increasing potential to benefit from AI data centers, a potential Apple deal, and other processor manufacturing agreements with leading tech companies already underway, it's understandable why investors are so excited about Intel right now.

The case for TSMC stock

I've long been bullish on Taiwan Semiconductor Manufacturing's stock, and the company hasn't given me any reason to shift my opinion.

First, the company manufactures an estimated 90% of the world's most advanced processors (mostly for AI) and about 73% of all the world's processors. That means TSMC will likely remain a dominant leader in semiconductor manufacturing for many years to come.

Spending on processors and AI infrastructure is accelerating as well. This year alone, tech giants will spend about $750 billion on AI infrastructure, some of which will go toward buying processors manufactured by TSMC.

And while there will likely be a slowdown in spending eventually, it's not here yet. Alphabet recently said it's spending up to $190 billion this year on capital expenditures, mostly for AI, and management has said it will spend even more next year.

Not only does TSMC dominate market share, but it is also far ahead of Intel and other manufacturers in terms of efficiency. The company can make advanced processors faster and with higher yield rates than anyone in the world, making it the default choice for many companies.

What's more, unlike Intel, which designs and manufactures its own processors, TSMC is only a manufacturer. The result is that Taiwan Semiconductor never competes with its customers and can benefit from any tech company that's leading the AI processor race.

Why TSMC is the better semiconductor stock

With TSMC leading in both global and advanced processor manufacturing, I think it's the better long-term semiconductor stock.

The company's processor manufacturing business is also profitable, while Intel's isn't. TSMC's earnings rose 65% in the first quarter to $3.49 per American depositary receipt (ADR). Meanwhile, Intel's foundry business is losing money, with its manufacturing business posting a $2.4 billion loss despite $5.4 billion in sales.

Investors are also paying a very hefty premium for Intel stock right now, given its trailing price-to-earnings (P/E) ratio is a staggering 904, compared to 37 for the average tech stock and about 40 for TSMC.

All this means you're vastly overpaying for Intel's shares right now, with much of the momentum for its processor deals already baked into the stock.

Chris Neiger has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, Intel, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.