Increasing demand for electronics, technological advancements, and favorable government investments have primed the semiconductor industry for rapid growth this year and beyond. In this piece, I evaluated two semiconductor stocks, Intel Corporation (INTC) and Photronics, Inc. (PLAB), to determine which could generate better returns.
The semiconductor market is set for substantial growth, driven by the increasing demand for consumer electronics such as smartphones, tablets, and wearables. According to a report by Research and Markets, the global semiconductor market is projected to grow at a CAGR of 8% and reach $971.71 billion by 2028.
Advanced technologies such as Artificial Intelligence (AI), the Internet of Things (IoT), and 5G communication are also propelling the industry's expansion. These technologies heavily rely on semiconductors for processing power, connectivity, and efficient data transmission, thereby contributing to the market's growth and expansion.
The increasing popularity of Electric Vehicles (EVs) is also bolstering the industry’s momentum. The need for power semiconductors, which are required for efficient energy conversion and control in EVs and renewable energy systems, is increasing as the world shifts toward sustainable transportation and clean energy sources.
Furthermore, substantial government investments are poised to benefit the semiconductor industry significantly. The CHIPS and Science Act, signed by President Biden last year, allocates $52.70 billion to support American semiconductor research, development, manufacturing, and workforce development.
This includes $39 billion in manufacturing incentives, $13.20 billion for research and development, and workforce training, and $500 million for international information communications technology security and semiconductor supply chain activities. The industry’s tailwinds should benefit both INTC and PLAB.
INTC declined 6.8% over the past month, while PLAB has gained 9.7%. Moreover, INTC has gained 4% over the past three months, while PLAB climbed 65.2%. Also, INTC has gained 27.9% over the past nine months compared to PLAB’s 77.7% surge.
But which stock is a better buy now? Let’s find out.
Recent Developments
On May 17, INTC and SAP SE (SAP), a provider of enterprise application software products, unveiled their partnership to provide enhanced and eco-friendly SAP® software environments on the cloud. The collaboration intends to empower customers with improved scalability, agility, and consolidation of their current SAP software setups.
The strategic partnership is expected to bolster INTC's commitment to delivering exceptionally potent and fortified SAP instances, harnessing the cutting-edge capabilities of 4th Gen Intel® Xeon® Scalable processors. As a result, INTC could benefit from providing customers with enhanced performance, consolidation, and cost efficiency.
In the fiscal second quarter, PLAB achieved record-breaking revenue as demand for its design-driven products surged. The company also experienced expanded profit margins through positive volume leverage, favorable pricing and product mix, and meticulous cost control.
Robust cash generation from operating activities further empowered PLAB to fortify its balance sheet and make organic growth investments. PLAB's solid financial performance is expected to enhance the company's financial standing and support future growth and stability.
Recent Financial Results
For the first quarter that ended April 1, 2023, INTC’s net revenue decreased 36.2% year-over-year to $11.72 billion. Its gross margin declined 56.6% from the prior year’s period to $4.01 billion. However, the company’s cash inflow from financing activities came in at $7.39 billion, compared to a cash outflow of $1.86 billion in the previous year’s quarter.
In addition, as of April 1, 2023, the company’s total assets stood at $185.30 billion, compared to $182.10 billion as of December 31, 2023.
For the second quarter that ended April 30, 2023, PLAB’s revenue increased 12.1% year-over-year to $229.31 million. Its gross profit grew 25.9% from the year-ago value to $88.40 million. Also, the company’s non-GAAP net income and non-GAAP EPS grew 42.7% and 42.1% year-over-year to $32.94 million and $0.54, respectively.
Past and Expected Financial Performance
Over the past three years, INTC’s revenue declined at a CAGR of 9.4% while its EBITDA decreased by a 35.5% CAGR. However, its total assets grew at a CAGR of 7.9% during the same period.
Analysts expect INTC’s revenue to decline 18.5% year-over-year to $51.39 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to decline 77.4% from the prior year to $0.42.
However, INTC’s consensus revenue and EPS estimates of $58.26 billion and $1.76 for the next fiscal year (ending December 2024) reflect a 13.4% and 324.2% year-over-year improvement.
PLAB’s revenue increased at a CAGR of 13.4% over the past three years. Its EBITDA and net income grew at CAGRs of 27.5% and 55.3%, respectively. Also, the company’s EPS and total assets rose at 59.5% and 8.6% CAGRs over the same time frame, respectively.
PLAB’s revenue is expected to grow 9.3% year-over-year to $901.40 million for the fiscal year (ending October 2023). In addition, analysts expect the company’s EPS for the current year to increase 3.1% year-over-year to $2.00.
Moreover, PLAB’s consensus revenue and EPS estimates of $920 million and $2.25 for the next fiscal year (ending October 2024) indicate 2.1% and 12.5% increases year-over-year.
Valuation
In terms of trailing-12-month Price/Sales, PLAB is currently trading at 1.81x, 25.2% lower than INTC, which is trading at 2.42x. Moreover, PLAB’s trailing-12-month EV/Sales multiple of 1.73 is 39.7% lower than INTC’s 2.87. Additionally, PLAB’s trailing-12-month EV/EBITDA of 4.64x is 71.8% lower than INTC’s 16.43x.
Thus, PLAB is relatively affordable.
Profitability
INTC’s trailing-12-month revenue is 64.85 times what PLAB generates. However, PLAB is more profitable, with a trailing-12-month EBITDA margin of 37.36% compared to INTC’s 17.47%. Also, PLAB’s trailing-12-month net income margin of 14.04% compares with INTC’s negative 5.06%.
In addition, PLAB’s trailing-12-month levered FCF margin of 11.86% compares to INTC’s negative 18.06%. Furthermore, PLAB’s trailing-12-month ROCE and ROTC of 17.09% and 13.04% compare to INTC’s negative 2.81% and negative 0.94%, respectively.
POWR Ratings
INTC has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, PLAB has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. INTC has a C grade for Quality, in sync with its mixed profitability scenario. The stock’s trailing 12-month EBITDA margin of 17.47% compares with the industry average of 8.57%, while its trailing-12-month asset turnover ratio of 0.31x is 48.6% lower than the industry average of 0.61x.
On the contrary, PLAB has a B grade for Quality, consistent with its higher-than-industry profitability. Its trailing-12-month EBITDA margin and asset turnover ratio of 37.36% and 0.63x are 336.2% and 3% higher than the industry averages of 8.57% and 0.61x, respectively.
Also, INTC has a C grade for Value, consistent with its mixed valuation. INTC has a forward non-GAAP P/E of 79.69x, which is 228.8% higher than the industry average of 24.24x. However, the stock’s forward Price/Sales multiple of 2.69 is 9.9% lower than the industry average of 2.98x.
On the other hand, PLAB has a B grade for Value, justified by its lower-than-industry valuation. PLAB’s forward non-GAAP P/E and forward Price/Sales of 12.93x and 1.79x compare to the industry averages of 24.24x and 2.98x, respectively.
Of the 92 stocks in the Semiconductor & Wireless Chip industry, INTC is ranked #72, while PLAB is ranked #6.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view INTC’s ratings. Get all PLAB ratings here.
The Winner
With the relentless surge in consumer electronics demand and the seamless integration of cutting-edge technologies with semiconductor components, the industry is on track for significant growth in the years to come. This upward momentum is expected to be further heightened by governments' strategic investments in the sector.
Prominent semiconductor stocks INTC and PLAB are positioned to benefit from the industry’s promising growth prospects. However, considering INTC’s relatively weak financial performance and high valuation, its competitor, PLAB, could be a better buy now. On the other hand, one could wait for a better entry point in INTC.
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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INTC shares were trading at $34.08 per share on Monday afternoon, up $0.93 (+2.81%). Year-to-date, INTC has gained 31.05%, versus a 18.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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