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Better Buy: Micron Technology, Inc. vs. Intel

INTC Chart

It doesn't matter where you've been; it only matters where you're going. That saying offers a useful starting place for comparing Intel (NASDAQ: INTC) and Micron Technology (NASDAQ: MU) . Though Micron shares trounced those of Intel over the past 12 months, can investors expect a similar performance in the year ahead?

INTC data by YCharts

To get a better sense of how Intel and Micron Technology stocks compare today, let's run these two semiconductor giants through a three-part analysis to see whose shares are the better buy today.

Micron Technology vs. Intel: Financial fortitude

In terms of financial stability, Intel has a clear advantage over Micron:

Company Cash and Investments Debt Cash From Operations Current Ratio
Micron Technologies $4.3 billion $9.6 billion $3.1 billion 1.7
Intel $32.3 billion $11.7 billion $19.1 billion 1.8

Data sources: Intel and Micron investor relations

Though it carries slightly more debt than Micron, Intel's ability to service its outstanding liabilities with either its cash and investments on hand or its cash from operations gives it far more flexibility than Micron in planning out its future.

Debt is not a bad thing in and of itself -- in fact, it can be hugely beneficial under the right circumstances -- but Intel's lower debt level relative to its assets and cash flow make it less risky than Micron. But Micron looks stable enough. Though no hard-and-fast rule exists, the fact that it could, in theory, erase the majority of its liabilities with cash on hand and a year's worth of cash flow makes it leveraged but stable. In terms of the quick ratio, both companies are safe as well.

Winner: Intel.

Micron Technology vs. Intel: Competitive analysis

Though the companies have a long history of working together, Intel and Micron are very different businesses. Most important, Intel enjoys a much stronger competitive position within its two core markets than Micron:

INTC Net Income (TTM) data by YCharts

Intel's financial performance is fueled mostly by its two core operating groups: the PC client group and the data center group. Together, they account for about 85% of Intel's sales. Moreover, Intel's chips are the de facto standard in PCs and data centers worldwide. Market share estimates vary, but Intel is thought to control about 85% of the PC processor market and at least 95% of the server chip space. Its technological leadership in each market affords Intel a fair amount of pricing power, which it then reinvests into its business in the form of a massive research and development budget, creating a virtuous cycle and enabling Intel's continued technological leadership in both markets. This isn't the perfect business model, but it does make Intel a model of consistency and profitability, something that can't be said of Micron.

Micron's tenuous competitive position is largely a function the memory market as a whole. Because memory is a commodity product, the industry is characterized by several large incumbents, of which Micron is the third largest, trying to match marketwide supply with demand. When supply exceeds demand, unit prices decline, which can lead to heavy losses among memory manufacturers. We saw this scenario play out in 2015 and 2016, triggering a painful sell-off in Micron shares. Now with that trend reversing, Micron should return to profitability, which has been the driving force behind the impressive rally its stock has enjoyed since mid-2016. Yet even so, Micron remains at the mercy of the broader industry dynamics of the memory market, which makes Intel the easy winner here, as far as competitive advantages go.

Winner: Intel.

Man holding a semiconductor chip

Image source: Getty Images.

Micron Technology vs. Intel: Valuation analysis

Reconciling businesses outlooks with valuations makes for an interesting analysis here. Let's look at how three commonly used valuation metrics appear for Micron Technology and Intel.

Company P/E Ratio Forward P/E Ratio EV/EBITDA
Micron Technologies N/A 8.6 9.7
Intel 17.7 12.4 7.8

Data source: Yahoo! Finance.

Comparing the two requires a bit of nuance. Micron's flip from loss to profit is captured in its current and forward earnings multiples. As we've seen, Micron is risky, but it's also cheap when viewed on a forward basis -- cheaper than Intel. The decision here comes down to a matter of preference. More aggressive investors might see Micron's volatility as an opportunity to profit. However, Intel still seems quite cheap, given the durability and profitability of its lead microprocessor franchises.

Winner: Tie.

And the winner is... Intel

From a risk-reward standpoint, Micron has more of both. To me, investing in an enduring franchise in Intel is more desirable than the roller coaster-like cyclicality that drives Micron's performance. By winning two of the three categories outright and enjoying a more stable business model, Intel seems like the better stock to buy today.

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Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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