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Intel vs. AMD: Analyst's Toolkit

Weighted Average Cost of Capital

Intel: 9.6% AMD: 10.5%

Intel's modest capital structure has helped to keep its weighted cost of capital low, allowing it to avoid sizeable debt-servicing requirements and big-time equity expectations. AMD, on the other hand, has run into a situation where its liabilities have eclipsed its assets, resulting in an average cost of debt of 8.9%, nearly triple Intel's. That means AMD needs to judiciously dole out funds to projects that have a high expected return to satisfy its capital sources, making growth more difficult. Investors in AMD demand a great deal more compensation than investors in Intel due to the risk inherent in its structure. Be wary of this before investing. Will this relatively tiny company be able to produce enough of a return to compensate for the risk?

Present Value of Growth Opportunities

Intel: $4.36 (20.7%) AMD: $13.97 (154%)

Based on AMD's current share price and its projected earnings for the coming year, we can back out how much of the stock price is based on future growth potential rather than near-term results. With over 150% of the share price coming from growth rather than actual expected profits, which don't exist, AMD appears to be pretty risky. Even if investors see AMD's chip technology as the surefire wave of the future, the current price is an unattractive investment since so much of that theoretical growth has already been priced into the shares. Clearly, the valuation for AMD is a bit optimistic, to say the least.

Price-to-Free-Cash-Flow-to-Equity (Year to September 2009)

Intel: 20.1 AMD: 18.1
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