Despite a worsening supply shortage, the semiconductor industry delivered 32.4% year-over-year sales growth in February. However, rising corporate investments and government support to ramp up production should help ease the shortage in the near term. Furthermore, the demand for semiconductor chips should continue to climb as companies adopt new technologies to make their operations more efficient. The global semiconductor market is expected to grow at a 6.6% CAGR to $808.50 billion by 2030.
However, a slight decline in PC demand in the first quarter and a suspension of sales in Russia have led to a decline in the sales for chip giant NVIDIA Corporation (NVDA) of late. This has caused analysts to downgrade the stock. Also, despite weak sales, the stock is trading at a premium to its peers. NVDA’s 34.17x forward EV/EBIT is 116.1% higher than the 15.81x industry average. And in terms of forward Price/Cash Flow, NVDA is currently trading at 47.28x, which is 157.3% higher than the 18.38x industry average. So, we think the stock is susceptible to a retreat in the near term.
However, a favorable industry backdrop should drive the performance of fundamentally sound and relatively undervalued semiconductor stocks Broadcom Inc. (AVGO), Qualcomm Incorporated (QCOM), and Intel Corporation (INTC). So, we believe these stocks are better bets instead of NVDA.
Click here to checkout our Semiconductor Industry Report for 2022
Broadcom Inc. (AVGO)
AVGO in San Jose, Calif., designs, develops, and supplies a range of analog and digital semiconductor connectivity solutions and infrastructure software solutions. The company develops semiconductor devices, focusing on complex digital and mixed-signal complementary metal-oxide-semiconductor-based devices and analog III-V-based products. Its products are used in data center networking, home connectivity, broadband access, telecommunications equipment, smartphones, and base stations.
On March 9, 2022, AVGO unveiled its 100G/lane optical PAM-4 DSP PHY with an integrated trans-impedance amplifier (TIA) and the BCM87412, a high-swing laser driver optimized for 400G DR4/FR4 module applications. Built on AVGO’s proven 112G PAM-4 DSP platform, this highly integrated DSP PHY provides the highest level of CMOS integration and superior performance with lower power consumption, enabling sub-7W 400G DR4/FR4 modules to drive the industry transition to energy-efficient 400G Ethernet. This should help AVGO gain more market reach in the coming months.
For its fiscal year 2022 first quarter, ended Jan. 31, 2022, AVGO’s net revenue increased 15.8% year-over-year to $7.71 billion. The company’s non-GAAP gross profit came in at $5.82 billion for the quarter, up 19.4% from the prior-year period. Its non-GAAP operating income was $4.66 billion, representing a 23.2% rise from the prior-year period. While its non-GAAP net income increased 25.8% year-over-year to $3.74 billion, its non-GAAP EPS increased 26.9% to $8.39. As of Jan. 31, 2022, the company had $10.22 billion in cash and cash equivalents.
Analysts expect AVGO’s EPS to improve 26.5% year-over-year to $35.42 for its fiscal year 2022, ending Oct.31, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $31.85 billion consensus revenue estimate for the same fiscal year indicates a 16% year-over-year improvement. The company’s EPS is expected to grow at a 14.7% rate per annum over the next five years.
The stock’s 13.84x forward EV/EBIT is 12.4% lower than the 15.81x industry average. And in terms of forward Price/Cash Flow, AVGO is currently trading at 15.07x, which is 18% lower than the 18.38x industry average. Over the past six months, the stock has gained 19.1% in price and closed Friday’s trading session at $587.
AVGO’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B grade for Growth and Sentiment. Click here to see the additional ratings for AVGO’s Value, Stability, and Momentum.
AVGO is ranked #5 of 96 stocks in the A-rated Semiconductor & Wireless Chip industry.
Note that AVGO is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Qualcomm Incorporated (QCOM)
QCOM in San Diego, Calif., is a multinational semiconductor and telecommunications equipment company that develops and delivers products and services based on code-division multiple access (CDMA) technology used in digital wireless communications equipment and satellite ground stations. The company operates through three segments–Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
On April 4, 2022, QCOM completed its acquisition of Arriver business, a software brand focused on sensor perception and drive policy, from SSW Partners, a New York-based investment partnership. The acquisition should enhance QCom’s Qualcomm Technologies subsidiary’s ability to deliver open, fully integrated, and competitive Advanced Driver Assistance System (ADAS) solutions as part of its Snapdragon Digital Chassis platform to automakers and Tier-1 suppliers at scale. Qualcomm Technologies will incorporate Arriver’s Computer Vision, Drive Policy, and Driver Assistance assets into its leading Snapdragon Ride Platform portfolio and allow QCOM to accelerate its ADAS offering going forward.
QCOM’s non-GAAP revenues for its fiscal year 2022 first quarter, ended Dec. 26, 2021, increased 30% year-over-year to $10.70 billion. The company’s non-GAAP earnings before taxes came in at $4.31 billion, up 47.9% from the prior-year period. While its non-GAAP net income increased 46.9% year-over-year to $3.69 billion, its non-GAAP EPS increased 48.9% to $3.23. The company had $6.61 billion in cash and cash equivalents as of Dec. 26, 2021.
The $11.83 consensus EPS estimate for its fiscal year 2022, ended Sept. 30, 2022, represents a 38.5% year-over-year improvement. It surpassed the consensus EPS estimates in each of the trailing four quarters. Analysts expect QCOM’s revenue to improve 26.5% year-over-year to $42.32 billion for the same fiscal year. The company’s EPS is expected to grow at a 14.7% rate per annum over the next five years.
QCOM’s 9.77x forward EV/EBIT is 38.2% lower than the 15.81x industry average. In terms of forward Price/Cash Flow, QCOM is currently trading at 12.26x, which is 33.3% lower than the 18.38x industry average. The stock has declined 16.4% in price over the past three months and ended yesterday’s trading session at $8.65.
Over the past six months, the stock has gained 8% and ended Friday’s trading session at $136.69.
QCOM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Quality, and Sentiment. Click here to see the additional ratings for QCOM’s Stability and Momentum.
QCOM is ranked #3 of 96 stocks in the Semiconductor & Wireless Chip industry.
Intel Corporation (INTC)
INTC designs, manufactures, and sells computer products and technologies that deliver networking, data storage, and communication platforms. The Santa Clara, Calif.-based company also provides IoT products, computer vision, machine learning-based sensing, data analysis, localization, mapping, and driving policy technology.
On March 31, 2022, INTC announced an agreement to acquire Granulate Cloud Solutions Ltd., an Israel-based developer of real-time continuous optimization software that will help cloud and data center customers maximize compute workload performance and reduce infrastructure and cloud costs. While cloud computing and microservices have created a new era of flexibility in distributed applications and deployment scalability, Granulate’s autonomous optimization service reduces CPU utilization and application latencies and enhances system performance.
INTC’s non-GAAP net revenue for its fiscal 2021 fourth quarter, ended Dec. 25, 2021, increased 3.5% year-over-year to $19.53 billion. The company had $4.83 billion in cash and equivalents as of Dec. 25, 2021.
INTC surpassed the Street’s EPS estimates in each of the trailing four quarters. The $75.99 billion consensus revenue estimate for the same fiscal year indicates a 1.7% year-over-year improvement. INTC’s EPS is expected to grow at a 3.4% rate per annum over the next five years.
The stock’s 11.97x forward EV/EBIT is 24.3% lower than the 15.81x industry average. In terms of forward Price/Cash Flow, INTC is currently trading at 6.73x, which is 63.4% lower than the 18.38x industry average. The stock has gained 3.8% in price over the past month and closed Friday’s trading session at $47.02.
INTC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B grade for Quality and Sentiment. Click here to see the additional ratings for INTC’s Growth, Stability, and Momentum.
INTC is ranked #6 of 96 stocks in the Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for
AVGO shares were trading at $585.12 per share on Monday afternoon, down $1.88 (-0.32%). Year-to-date, AVGO has declined -11.47%, versus a -6.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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