Article 17:
Author: Nimesh Jaiswal
Date: 04/06/2022
Primary Ticker: Advanced Micro Devices, Inc.(NASDAQ:AMD)
Secondary Ticker: QCOM
Teaser:
Established wireless technology company QUALCOMM Incorporated (QCOM) is engaged in developing, launching, and expanding technologies like fifth-generation. It is also involved in developing and commercializing foundational technologies and products used in mobile devices and other wireless products worldwide. In comparison, Advanced Micro Devices, Inc. (AMD) operates in two segments: Computing and Graphics; and Enterprise, Embedded, and Semi-Custom. Its products include x86 microprocessors, chipsets, discrete and integrated graphics processing units, data centers, and professional GPUs.
While the supply chain delays have already impacted the semiconductor industry, Russia’s invasion of Ukraine could lead to further chip shortages. However, robust demand due to hybrid working arrangements and decarbonization has allowed companies to raise prices for their chips and generate substantial profits. In addition, rising investments worldwide to ramp up semiconductor production should help the industry witness significant growth in the upcoming months. Moreover, the passage of the $52 billion CHIPS Act is also expected to strengthen domestic semiconductor manufacturing and research. According to BlueWeave consulting, the global semiconductor market is estimated to grow at a CAGR of 5.2% between 2022 and 2028. Therefore, both QCOM and AMD should benefit.
QCOM has gained 21.4% over the past six months, while AMD has returned 10.2%. However, AMD’s 16.7% gains over the past nine months are significantly higher than QCOM’s 7.9% returns. Moreover, AMD is the clear winner with 36.3% gains versus QCOM’s 11.6% returns in terms of year-to-date performance.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On April 4, 2022, QCOM announced it had completed its acquisition of Arriver from SSW Partners. Nakul Duggal, senior vice president and GM, automotive, QCOM, said, "As we become a key technology partner to the automotive industry, Arriver's Driver Assistance assets will accelerate our efforts to deliver a leading, ADAS solution as part of our Snapdragon® Digital Chassis™ platform."
Click here to checkout our Semiconductor Industry Report for 2022
On February 24, 2022, AMD announced that its board of directors approved a new $8 billion share repurchase program. AMD Chair and CEO Dr. Lisa Su said, “With our strong financial performance, we are able to increase investments to drive long-term growth while returning additional value to our shareholders.”
Recent Financial Results
QCOM’s revenue increased 30% year-over-year to $10.71 billion for the fiscal first quarter ended December 26, 2021. The company’s earnings before taxes grew 48% year-over-year to $3.87 billion, while its net income increased 38% year-over-year to $3.40 billion. Also, its EPS came in at $2.98, up 41% year-over-year.
AMD’s revenues increased 49% year-over-year to $4.82 billion for its fiscal fourth quarter, which ended December 25, 2021. The company’s non-GAAP operating income grew 100% year-over-year to $1.33 billion, while its non-GAAP net income came in at $1.12 billion, representing a 76% year-over-year increase. And its non-GAAP EPS was $0.92, up 77% year-over-year.
Past and Expected Financial Performance
QCOM’s revenue and EPS grew at CAGRs of 18.9% and 80.2%, respectively, over the past three years. Analysts expect QCOM’s revenue to increase 26.5% in fiscal 2022 and 7.7% in fiscal 2023. The company’s EPS is expected to grow 38.6% in fiscal 2022 and 6.5% in fiscal 2023. Moreover, its EPS is expected to grow at a 14.7% rate per annum over the next five years.
In comparison, AMD’s revenue and EPS grew at CAGRs of 36.4% and 100.3%, respectively, over the past three years. The company’s revenue is expected to increase 54.5% in fiscal 2022 and 13.9% in fiscal 2023. Its EPS is expected to grow 44.8% in fiscal 2022 and 16.3% in fiscal 2023. Also, AMD’s EPS is expected to grow at a 29.9% rate per annum over the next five years.
Profitability
QCOM’s trailing-12-month revenue is 2.19 times what AMD generates. QCOM is also more profitable with a gross profit margin and net income margin of 58.16% and 27.71%, compared to AMD’s 48.25% and 19.24%, respectively.
Furthermore, QCOM’s ROE of 106.74% is higher than AMD’s 47.43%.
Valuation
In terms of forward non-GAAP P/E, AMD is currently trading at 27.33x, which is 110.7% higher than QCOM’s 12.97x. Furthermore, AMD’s 20.75x forward EV/EBITDA ratio is 115.7% higher than QCOM’s 9.62x.
So, QCOM is relatively affordable here.
POWR Ratings
QCOM has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. In comparison, AMD has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
QCOM has a B grade for Value, consistent with its 10.48x forward EV/EBIT, 36% lower than the 16.36x industry average. However, AMD has a C grade for Value, which is in sync with its 22.54x forward EV/EBIT, 37.8% higher than the 16.36x industry average.
Moreover, QCOM has a grade of B for Quality. This is justified given QCOM's 5.56% trailing-12-month CAPEX/Sales, 146.4% higher than the industry average of 2.25%. On the other hand, AMD has a Quality grade of C, in sync with its 1.83% trailing-12-month CAPEX/Sales, 18.8% lower than the industry average of 2.25%.
Of the 97 stocks in the A-rated Semiconductor & Wireless Chip industry, QCOM is ranked #4. In contrast, AMD is ranked #66.
Beyond what I have stated above, we have also rated the stocks for Sentiment, Momentum, Growth, and Stability. Click here to view all the QCOM ratings. Also, get all the AMD ratings here.
The Winner
The semiconductor industry is expected to continue snowballing with advancements in artificial intelligence (AI), the Internet of Things (IoT), and 5G connectivity. And while both QCOM and AMD are expected to benefit, we think QCOM is a better investment because of its lower valuation and higher profit margin.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Semiconductor & Wireless Chip industry here.
AMD shares were trading at $103.80 per share on Wednesday afternoon, down $3.02 (-2.83%). Year-to-date, AMD has declined -27.87%, versus a -5.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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