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The rivalry between Intel Corporation (NASDAQ: INTC) and Advanced Micro Devices, Inc. (NASDAQ: AMD) is intensifying, with bigger rival Intel likely to cede share to smaller competitor AMD, according to Barclays.

The Analyst

Analyst Blayne Curtis downgraded Intel from Neutral to Underweight and reduced the price target from $53 to $38.

The analyst maintained an Underweight on AMD and raised the price target from $15 to $25.

Intel Battles To Retain Market Share

End-market tailwinds that catalyzed a run in the shares of Intel — such as PC shortages and slowing server growth — are about to reverse, Curtis said in a Monday note. (See the analyst's track record here.)

The analyst pointed to increased competition that stems from process slippage and an impending turf war. Pricing and margin pressures and increasing capex needs have led to a decline in free cash flow returns, he said.

If Intel tries to compete with AMD on pricing, the analyst said that every 2-percent decline in server ASP leads to a 9-cent hit to EPS, and a 2-percent decline in client ASP costs 12 cents.

The names being considered for the CEO role are not disruptive enough to take on these challenges, Curtis said.

"Net-net, INTC is still a very successful near-monopoly, but by squandering its manufacturing lead, the company now faces a costly battle to retain share amidst a near-term slowing of its end market."

AMD Positioned For Share Gains

AMD's share price suggests 10-percent-plus market share in 2020 with no execution risk, and a $40-$50 bull case suggests over 20-percent share, Curtis said.

The analyst expects AMD to see strong performance gains in EPYC 2 at a time when Intel's roadmap is facing challenges, with its 10nm server product expected in mid-2020 at best.

Both servers and GPUs hold some risk next year, Curtis said. EPYC 1 is likely to fetch $100 million in the December quarter, but AMD may not post sequential server growth throughout 2019, as EPYC 1 wanes and EPYC 2 doesn't ramp until late 2019, he said.

NVIDIA Corporation (NASDAQ: NVDA)'s Pascal sales trends into the holiday season will determine how much discounting is needed to clear the excess inventory, which in turn will have a chain reaction on AMD pricing, according to Barclays.

The Price Action

In pre-market trading, Intel shares were falling 1.46 percent to $47.29 and AMD was seen declining 0.36 percent to $30.78.

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