This article aims to analyze and compare the investment opportunities offered by leading chip stocks Advanced Micro Devices, Inc. (AMD) and QUALCOMM Incorporated (QCOM). Before delving into these stocks, let’s explore the chip industry’s outlook.
The chip industry is on track for growth this year, aided by the resurgence in demand for artificial intelligence (AI) and a consistent increase in automotive chips. Global semiconductor sales surged 16.3% year-over-year in February 2024, totaling $46.20 billion.
The Semiconductor Industry Association (SIA) forecasts a 13.1% year-over-year growth in global chip sales, reaching $595.3 billion for the current year. This marks a significant turnaround from the approximately 8% decline experienced in 2023. Chip stocks AMD and QCOM will likely benefit from the industry’s bright growth prospects.
However, QCOM leads in terms of price performance, with a 1.6% gain over the past month, compared to AMD’s 16.1% decline. Moreover, while AMD has soared 8.8% year-to-date, QCOM has soared 17.4%.
So, here are the reasons why I think QCOM could perform better in the near term:
Latest Developments
On April 9, 2024, AMD launched new Versal AI Edge Series Gen 2 and Versal Prime Series Gen 2 adaptive SoCs, combining preprocessing, AI inference, and postprocessing in one device for AI-driven embedded systems.
These chips cater to the growing demand for AI-enabled embedded applications and target industries like automotive, aerospace, defense, industrial, vision, healthcare, broadcast, and pro AV markets.
Conversely, on March 5, QCOM increased its quarterly cash dividend from $0.80 to $0.85 per share, raising the annual payout to $3.40 per share. The company pays $3.20 annually, which translates to a yield of 1.88% on the prevailing price level. Its four-year average dividend yield is 2.20%.
The company’s dividend payouts have grown at CAGRs of 6.8% and 5.2% over the past three and five years, respectively. Moreover, the company boasts a 20-year record for consecutive years of dividend growth.
Recent Financial Results
During the fiscal fourth quarter that ended December 30, 2023, AMD’s revenue increased 10% year-over-year to $6.17 billion. Its non-GAAP net income and non-GAAP EPS were $1.25 billion and $0.77, up 12.6% and 11.6% year-over-year, respectively. However, its non-GAAP operating expenses grew 8.1% from the year-ago value to $1.73 billion.
In contrast, in the fiscal 2024 first quarter that ended December 24, 2023, QCOM non-GAAP total revenues increased 4.9% year-over-year to $9.92 billion. The company’s non-GAAP operating income and net income grew 10.5% and 15.5% from the year-ago quarter to $3.62 billion and $3.10 billion, respectively. Moreover, its non-GAAP EPS grew 16% from the previous year’s quarter to $2.75.
Past And Expected Financial Performance
AMD’s revenue and EBITDA have grown at respective CAGRs of 32.4% and 31.9% over the past three years. However, the company’s net income has decreased at a CAGR of 30% over the same period, and its EPS has declined at a CAGR of 36.5%.
Analysts expect AMD’s EPS to rise 1.4% in the to-be-reported quarter and 35.7% this year. Its revenue will likely rise 1.8% in the to-be-reported quarter and 13.5% this year.
On the other hand, QCOM’s revenue and EBITDA have grown at 10.8% and 5.9% CAGRs, respectively, over the past three years. Its net income has improved at a CAGR of 4.9% and its EPS has increased at a CAGR of 5.7% over the same time frame.
Street expects QCOM’s EPS to rise 7.6% in the to-be-reported quarter and 15.5% this year. Its revenue is likely to increase marginally in the to-be-reported quarter and 6.4% this year.
Profitability
QCOM is more profitable, with a trailing-12-month EBIT margin of 24.81% compared to AMD’s 1.77%. QCOM’s trailing-12-month EBITDA margin and net income margin of 29.90% and 21.39% are higher than AMD’s 16.99% and 3.77%, respectively.
Additionally, QCOM trailing-12-month ROCE, ROTA, and ROTC of 37.63%, 14.89%, and 15.16% compared with AMD’s 1.54%, 1.26%, and 0.43%, respectively.
Valuation
In terms of non-GAAP P/E, QCOM is currently trading at 17.44x, lower than AMD, which is trading at 45.46x. QCOM’s forward EV/Sales and EV/EBITDA of 5.06x and 13.27x are lower than AMD’s 10.15x and 50.64x, respectively.
Thus, QCOM is relatively more affordable.
POWR Ratings
AMD has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, QCOM has an overall rating of B, translating to a 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. AMD has a C grade for Quality. The stock’s trailing-12-month EBIT margin of 1.77% is 62.9% lower than the industry average of 4.76%. However, its trailing-12-month EBITDA margin of 16.99% is 79.1% higher than the industry average of 9.49%.
On the contrary, QCOM has a B grade for Quality. The stock’s trailing-12-month EBIT margin of 24.81% is 421.1% higher than the 4.76% industry average. Its trailing-12-month EBITDA margin of 29.90% is 215.2% higher than the industry average of 9.49%.
Among the 91 stocks in the Semiconductor & Wireless Chip industry, AMD is ranked #73, while QCOM is ranked #5.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Stability, Momentum, and Sentiment. Click here to view AMD Ratings. Get all QCOM ratings here.
The Winner
Increasing chip demand across various applications in diverse industries, coupled with the adoption of cutting-edge technologies and supportive government initiatives, is paving the way for significant growth opportunities in the semiconductor sector. With a promising industry outlook, chip stocks like AMD and QCOM are positioned for substantial growth.
However, considering AMD's high valuation, low profitability, and uncertain short-term outlook, QCOM emerges as the superior choice among chip stocks.
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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QCOM shares were trading at $169.19 per share on Tuesday morning, down $0.65 (-0.38%). Year-to-date, QCOM has gained 17.58%, versus a 6.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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