The semiconductor industry witnessed significant supply chain disruptions in 2022. However, according to Peter Voser, the chairman of Swedish-Swiss tech and engineering giant ABB, the global shortage of semiconductors is expected to ease this year.
Moreover, the CHIPS Act is expected to bolster the industry further. It allocates $52.70 billion for American semiconductor research, development, manufacturing, and workforce development. Lucrative federal investments are expected to help the semiconductor industry thrive in the upcoming terms. The global semiconductor industry is projected to grow at a CAGR of 7% until 2030.
Therefore, quality stocks Advanced Micro Devices, Inc. (AMD) and STMicroelectronics N.V. (STM) are expected to gain significantly. AMD and STM are popular chip makers operating globally.
AMD has gained 16% over the past month, while STM has gained 32.8%. Also, AMD has lost 20.5% over the past three months, while STM has gained 24.5%.
Which stock is a buy? Let's find out.
Latest Developments
On December 1, 2022, AMD and Viettel High Tech (Member of Viettel Group) announced the successful completion of a 5G mobile network field trial deployment. This collaboration for advanced 5G connection deployment is expected to be strategically beneficial for both companies.
On the other hand, on January 30, 2023, STM launched the world's first MCU Edge-AI Developer Cloud.
Ricardo De Sa Earp, Executive Vice President of General-Purpose Microcontroller Sub-Group, STM, said, "Our goal is to deliver the best hardware, software, and services to meet the challenges faced by embedded developers and data scientists so that they can develop their edge AI application faster and with less hassle."
Recent Financial Results
AMD's revenue came in at $5.60 billion for the fourth quarter that ended December 31, 2022, up 16% year-over-year. However, its non-GAAP operating income came in at $1.26 billion, down 5% year-over-year. Also, its non-GAAP net income decreased marginally year-over-year to $1.11 billion, while its non-GAAP EPS decreased 25% year-over-year to $0.69.
On the other hand, STM's net revenues came in at $4.42 billion for the quarter that ended December 31, 2022, up 24.4% year-over-year. Its net income increased 66.6% year-over-year to $1.25 billion, while its EPS increased 61% year-over-year to $1.32.
Past and Expected Financial Performance
AMD's revenue is expected to increase 5.1% year-over-year to $24.71 billion for the current fiscal year 2023, while its EPS is expected to increase 2% year-over-year to $3.58 for the same period. Moreover, its EPS is expected to rise 14.3% per annum for the next five years. Also, it surpassed EPS estimates in three of four trailing quarters.
On the other hand, STM's revenue is expected to increase 6% year-over-year to $17.10 billion for the fiscal year 2023 and 4.8% year-over-year to $17.92 billion for the next fiscal year 2024. Its EPS is expected to increase 7.7% year-over-year to $4.36 in 2024. Moreover, its EPS is expected to rise 5% per annum for the next five years. In addition, it surpassed EPS estimates in all four trailing quarters.
Profitability
AMD's gross profit margin of 50.95% is higher than STM's 47.34%. However, AMD's EBITDA and net income margins of 24.30% and 9.96% are lower than STM's 34.76% and 24.55%, respectively. Also, AMD's ROE, ROA, and ROTC of 7.37%, 2.26%, and 5.72% are lower than STM's 36.00%, 20.34%, and 20.13%, respectively.
Valuation
In terms of forward EV/Sales, AMD's 4.85x is higher than STM's 2.41x. Its forward EV/EBITDA of 14.93x is 114.8% higher than STM's 6.95x. Furthermore, AMD's forward P/E of 66.92x compares with STM's 11.06x.
Thus, STM is relatively more affordable.
POWR Ratings
STM has an overall rating of A, equating to Strong Buy in our proprietary POWR Ratings system. On the other hand, AMD has an overall rating of D, which translates to Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
STM has a B grade for Quality. Its trailing-12-month CAPEX/Sales of 19.57% is 679.5% higher than the industry average of 2.51%.
On the other hand, AMD has a D grade for Quality. Its trailing-12-month CAPEX/Sales of 1.80% is lower than the industry average.
In addition, STM has a C grade for Stability, in sync with its beta of 1.30. On the other hand, AMD has an F grade for Stability, with its beta of 1.98.
Of the 92-stock Semiconductor & Wireless Chip industry, STM is ranked #2, while AMD is ranked #88.
Beyond what we've stated above, we have also rated the stocks for Growth, Value, Momentum, and Sentiment. Click here to view STM Ratings. Get all AMD ratings here.
The Winner
The supply chain issues in the semiconductor industry are expected to ease this year, which should boost production. Given the steady prospects of the industry, quality stocks STM and AMD should benefit. However, STM's better financials and attractive valuations make it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.
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STM shares rose $0.16 (+0.34%) in premarket trading Wednesday. Year-to-date, STM has gained 32.75%, versus a 6.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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