Chipmaker stocks have certainly had their ups and downs over the years, but this year, they've been heading mostly down, creating the potential for investors to pick and choose the cream of the crop at a discount. In this piece, we used TipRanks' Comparison Tool to evaluate two popular semiconductor stocks -- Advanced Micro Devices (AMD) and NVIDIA (NVDA). A closer look reveals why AMD deserves a bullish view, while a bearish view may be more accurate for NVDA.
Advanced Micro Devices and NVIDIA have both benefited from cryptocurrency mining and other trends that drove increases in semiconductor sales.
Meanwhile, the semiconductor industry has had a difficult time since the early days of the pandemic as shortages squeezed supplies of everything from cars to smartphones and tablets.
However, the recently signed CHIPS and Science Act should give the chipmaking industry a boost. It's aimed at bolstering the semiconductor supply chain and promoting R&D on advanced technologies in the U.S. Some chipmakers are likely to benefit from this law more than others.
The State of the Semiconductor IndustryIn the U.S., one trend that's sure to drive growth in the chip industry is the CHIPS and Science Act. Unfortunately, neither AMD nor NVIDIA is expected to benefit from that law, which is aimed at driving domestic semiconductor production. Although both companies are based in the U.S. and design their own chips, they contract third-party companies like Samsung (GB: SMSN) and TSMC (TSM) to manufacture their semiconductors.
As a result, they can't benefit from the $52 billion the federal government has earmarked for companies to build new fabrication plants in the U.S. However, there are other effects to consider when looking at AMD and NVIDIA.
The pandemic opened a lot of people's eyes to the importance of computer chips. Many industries were put on hold due to the widespread shortages of semiconductors. Deloitte estimates that the global semiconductor industry will be worth about $600 billion this year.
The firm also estimates that chip shortages during the pandemic likely cost more than $500 billion in lost sales, including $210 billion in lost auto sales. Deloitte sees the trend line of semiconductor sales as "steeper than ever before as we enter a period of robust secular growth." As a result, there should be plenty of sales available to the chipmakers that take the necessary sales to attract them.
Advanced Micro DevicesOn that note, reviewing AMD's and NVIDIA's earnings results is very revealing. In Q2, AMD reported adjusted earnings of $1.05 per share on $6.55 billion in revenue. Analysts had been expecting earnings of $1.03 per share on $6.53 billion in revenue.
The chipmaker's total revenue rose 70% year-over-year on the back of growth in all segments and the addition of sales from the recent Xilinx acquisition.
As a result, the slowdown in crypto mining due to the Ethereum (ETH-USD) blockchain's switch from proof-of-work to proof-of-stake shouldn't drastically reduce AMD's sales.
It should also be noted that AMD's gross margin for the June quarter declined only two percentage points year-over-year to 46% -- despite this year's soaring inflation. The chipmaker's non-GAAP gross margin actually increased, rising six percentage points year-over-year to 54%. AMD also posted record non-GAAP operating income of $2 billion or 30% of revenue, a 24% increase year-over-year, and record non-GAAP net income of $1.7 billion.
There are other things to like about Advanced Micro Devices. For example, the company's cash and equivalents stood at $6 billion at the end of June, while debt was less than half of that at $2.8 billion. The chipmaker also repurchased $920 million in shares during the quarter and reported record cash from operations of $1.04 billion. Free cash flow rose to $906 million.
All in all, the Q2-earnings report was a strong showing, given macroeconomic challenges. However, AMD did disappoint with its guidance, as it expects $6.7 billion in sales for the current quarter, plus or minus $200 million. Analysts had been looking for $6.83 billion.
Additionally, AMD's P/E is low relative to its history at 40x. The chipmaker's P/E has been declining since it peaked at ~270x in January 2020. Although AMD's P/E is high compared to others, like Intel (INTC), the robust earnings and sales numbers suggest a premium could be warranted.
In fact, Hold-rated Intel has been struggling with execution, which is another reason AMD's numbers have been better than Intel's. With AMD shares down about 37% year-to-date due to the tech-focused sell-off, this could represent an attractive entry point.
Is AMD Stock a Buy?Turning to Wall Street, Advanced Micro Devices has a Moderate Buy consensus rating based on 19 Buy ratings, eight Hold ratings, and one Sell rating over the last three months. At $123.17, the average AMD price target implies upside potential of 35.1%.
NVIDIAAn analysis of NVIDIA's latest earnings report reveals general weakness compared to AMD. It certainly seems as if the economic slowdown and soaring inflation have taken a bigger bite out of NVIDIA's numbers.
The chipmaker reported adjusted earnings per share of $0.51 on $6.7 billion in revenue. Analysts had been expecting EPS of $0.50 on $6.7 billion in sales. While AMD's sales soared compared to last year, NVIDIA's revenue rose only 3%. Its gross margin fell 21.3 percentage points year-over-year, falling to 43.5%, compared to AMD's largely-stable gross margin.
While AMD posted several record numbers, NVIDIA reported declines virtually across the board. Non-GAAP net income fell 51% year-over-year to $1.3 billion, while adjusted operating income fell 57% year-over-year to $1.3 billion.
NVIDIA cited "challenging market conditions" in its Gaming segment for the earnings disappointments. The chipmaker also reported write-downs on some of its Data Center inventory, while AMD had reported an 83% year-over-year increase in sales from its Data Center business.
For the October quarter, NVIDIA guided for $5.9 billion in sales, plus or minus 2%. That compares to the consensus of $6.9 billion, a significantly larger disappointment than AMD's guidance.
With so many disappointments, NVIDIA surely deserves a lower P/E than AMD, but its ratio stands at 43.6X. In fact, the company's stock rose more than 1% the day after its most recent earnings report, although it's down 45% year-to-date.
Is It Good to Buy Nvidia Stock? Analysts Weigh InTurning to Wall Street, NVIDIA has a Strong Buy consensus rating based on 23 Buys, seven Holds, and zero Sell ratings over the last three months. At $215.18, the average NVIDIA price target implies upside potential of 32.3%.
Conclusion: AMD Looks Cheap Relative to NVIDIAAside from the P/E ratios and earnings numbers that make AMD look cheaper than NVDA, one other thing that should be considered when comparing the companies is AMD's acquisition of Chinese chipmaker Xilinx. It's unclear just how much that acquisition boosted the company's latest earnings results because it did not break down Xilinx's contributions.
However, Xilinx reported about $1 billion in sales for the quarter it reported in January. Thus, based on that amount, the chipmaker could have added about 37% of the sales increase AMD reported in the most recently completed quarter. If that estimate is accurate, then AMD is still growing organically on top of the Xilinx acquisition, although it's difficult to know just how much organic growth the company is enjoying.
At the end of the day, NVIDIA's higher P/E doesn't appear warranted when comparing the two chipmaker's earnings results. It seems many analysts may believe NVIDIA will have turned the corner by the time the earnings report for the October quarter comes out, but there is no certainty on that. Thus, NVIDIA currently looks riskier than AMD.
With the global semiconductor market expected to witness double-digit growth in 2022, it could be the right time to invest in semiconductor stocks. Nvidia Corp. (NASDAQ:NVDA), Intel Corp. (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD), Broadcom Inc. (NASDAQ:AVGO), and Qualcomm, Inc. (NASDAQ:QCOM) are the five semiconductor stocks that could help investors pocket exceptional returns as the market expands.
According to the World Semiconductor Trade Statistics (WSTS), the global semiconductor market is expected to rise by almost 14% this year to $633 billion, riding on strong chip demand. This follows a 13.3% year-over-year increase in worldwide semiconductor sales to $152.5 billion in the second quarter of 2022, data from the Semiconductor Industry Association (SIA) showed.
Elaborating on the second-quarter figures, John Neuffer, the President and CEO of the SIA, said that semiconductor sales rose “across all major regional markets and product categories” year-over-year.
In 2022, WSTS expects the Logic semiconductor segment to lead all categories with a growth of 24.1%, followed by Analog (21.9%) and Sensors (16.6%). It also projects semiconductor sales to surge 23.5% in the Americas, 14.2% in Japan, 14% in Europe, and 10.5% in the Asia Pacific region.
WSTS has also provided a worldwide semiconductor sales forecast for the next year. It anticipates the global semiconductor market to be valued at $662 billion in 2023, up 4.6% year-over-year, driven by mid-single digit growth across all categories. The Logic segment is expected to rise the most next year to reach $200 million and account for around 30% of the total market.
Now, let’s learn more about the five companies mentioned above that could receive a major boost as the demand for semiconductor chips rises.
Before we proceed any further, here is a pictorial comparison of the five stocks, NVDA, INTC, AMD, AVGO, and QCOM, for you to consider.
Nvidia (NASDAQ:NVDA)Founded in 1993, Nvidia offers computer graphics and artificial intelligence services to industries including transportation, gaming, and healthcare. Based in the Californian city of Santa Clara, the company boasts of a market cap of over $430 billion.
Nvidia recently reported financial results for the fiscal second quarter, which were hit by supply chain constraints and a challenging macro environment. While several analysts reduced their price target for Nvidia, following the release of its results, they continued to maintain a Buy rating on the stock. This signifies that they expect the company to overcome the headwinds and continue to grow.
Is Nvidia a Buy?On TipRanks, the stock has a Strong Buy consensus rating based on 25 Buys and seven Holds. Nvidia’s average price forecast of $220 implies 22.8% upside potential. Bloggers are also positively inclined toward the stock, as they are 81% Bullish on the company, compared to the sector average of 66%.
Intel (NASDAQ:INTC)With a market cap of almost $140 billion, Intel is one of the oldest technology companies in the world. It offers Internet of Things (IoT), data center, cloud computing, and PC solutions to power today’s digital world. The California-headquartered company recently signed a $30 billion deal with Canada-based Brookfield Asset Management (NYSE:BAM) to set up a semiconductor fabrication plant in Arizona.
The deal forms a part of Intel CEO Pat Gelsinger’s plan to make the company a leader in contract chip manufacturing. It would also help the tech giant save cash to continue paying dividends. Bernstein analyst Stacy Rasgon believes the deal would rid Intel of the need to borrow funds to implement its expansion plans.
Is Intel a Buy, Sell or Hold?Based on five Buys, 16 Holds, and nine Sells, Intel has a Hold consensus rating, as per TipRanks. INTC’s average price target of $40.50 suggests 16.1% upside potential to current price levels. Meanwhile, bloggers and retail investors are convinced about Intel’s future growth, which is visible from their positive stance on the stock.
TipRanks data shows that 77% of financial bloggers are Bullish on the stock, compared to the sector average of 66%. Additionally, 1.8% of retail investors on TipRanks have increased their exposure to the stock over the past 30 days.
Advanced Micro Devices (NASDAQ:AMD)Advanced Micro Devices manufactures and sells graphics, processors, Field Programmable Gate Arrays (FPGAs), Adaptive SOCs (system-on-chip), and software to the gaming and business computing industries. The $150 billion company reported upbeat second-quarter results at the beginning of this month. However, its third-quarter forecast fell slightly short of analyst expectations.
Is AMD a Buy Right Now?Encouraged by strong second-quarter results, most Wall Street analysts reiterated a Buy rating on AMD recently and suggested that investors could consider buying the dip as the company is poised for long-term growth.
As of now, the stock has a Moderate Buy consensus rating, which is based on 19 Buys, eight Holds, and one Sell. AMD’s average price target of $123.17 implies upside potential of 26.7%.
As per TipRanks, as many as 19 hedge funds that were active in the last quarter increased their stakes in AMD by 1.9 million shares.
Broadcom (NASDAQ:AVGO)Based out of San Jose, Broadcom designs, manufactures, and sells semiconductor and infrastructure software solutions. Its offerings include motor drive & control solutions, broadband access solutions, enterprise security solutions, financial services solutions, data center solutions, and broadband Wi-Fi AP solutions.
The $222 billion company is scheduled to release its fiscal third-quarter results next week. The Street anticipates earnings to come in at $9.56 per share, compared to $9.07 reported in the second quarter and $6.96 per share reported in the fiscal third quarter of last year. Broadcom expects revenues to total around $8.4 billion in the third quarter.
Is Broadcom a Good Stock to Buy?All nine analysts that have provided coverage on the stock have a Buy rating on Broadcom, which makes AVGO stock a Strong Buy. Broadcom’s stock price prediction of $702.50 mirrors 27.7% upside potential.
Bloggers and retail investors have a positive stance on the stock. TipRanks data shows that 2.1% of retail investors increased their exposure to the stock over the past 30 days. Further, 95% of financial bloggers are Bullish on AVGO, compared to the sector average of 66%.
Qualcomm (NASDAQ:QCOM)San Diego-based Qualcomm develops and sells wireless technology, semiconductor chips, IoT, PC computing, and 5G solutions, among others. Last month, the $164 billion company reported outstanding fiscal third-quarter results, driven by record QCT (Qualcomm CDMA Technologies) Automotive and IoT revenues.
However, it lowered its fiscal fourth-quarter outlook to account for the impact of macroeconomic headwinds and lower-than-expected global demand for smartphones. Following the results, John Vinh of KeyBanc said that Qualcomm will be able to boost its share in markets like automotive, augmented and virtual reality devices, and computers.
What Is Qualcomm’s Price Target?Qualcomm’s average price target stands at $189.85, implying almost 30% upside potential. The stock has a Moderate Buy consensus rating on TipRanks, which is based on 11 Buys and five Holds. Further, QCOM scores a nine out of 10 on TipRanks’ Smart Score rating system, suggesting that the stock has strong potential to outperform the market.
Are Semiconductor Stocks a Good Long-Term Investment?Semiconductor stocks could prove to be a good long-term investment option as demand for semiconductor products is bound to rise on the back of technological advancements and increased global digital connectivity. Smartphone and computer manufacturers are not the only clients of semiconductor companies anymore. Makers of electronic devices like TVs, refrigerators, washing machines, and LED bulbs have also started using semiconductor products and devices in their offerings.
Additionally, analyst Vinh believes that “deteriorating demand for smartphones” is a short-term phenomenon and is not likely to have any significant impact on the profitability of semiconductor companies.
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