Advanced Micro Devices, Inc. (AMD) and QUALCOMM Incorporated (QCOM) are two established companies in the semiconductor industry. AMD develops computing and visualization products. It offers x86 microprocessors as standalone devices or incorporated into an accelerated processing unit (APU), chipsets, and in discrete and integrated graphics processing units (GPUs). QCOM develops and commercializes wireless industry technologies. It is organized into three segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing, and Qualcomm Strategic Initiatives.
An exponential increase in demand and limited supply are driving up prices for semiconductors. The demand is increasing primarily from the electronics and automotive sectors. This, combined with the huge government and private investments to increase the supply of semiconductors, should drive the industry’s growth.
Investors’ growing interest in this space is evident in iShares PHLX Semiconductor ETF’s (SOXX) 70.5% returns over the past year. According to Fortune Business Insights, the global semiconductor market is expected to grow at an 8.6% CAGR between 2021 - 2028. So, AMD and QCOM are expected to benefit significantly in the coming months.
While QCOM has gained 60.2% over the past year, AMD has returned 53.9%. Also, in terms of their nine months’ performance, QCOM is a clear winner with 18.7% returns versus AMD’s 6.5%. But which of these two stocks is a better pick now? Let's find out.
Click here to checkout our Semiconductor Industry Report for 2021
Latest Movements
On March 16, 2021, QCOM’s subsidiary, Qualcomm Technologies, Inc., completed its acquisition of the world-class CPU and technology design company NUVIA for $1.4 billion. In response to the heightened need for on-demand computing in the 5G era, this acquisition should help QCOM provide differentiated products with leading CPU performance and power efficiency.
AMD recently announced that its EPYC 7002 series processors are powering the new Hewlett Packard Enterprise HPE Alletra 6000, a cloud-native data infrastructure storage solution. AMD’s EPYC processors deliver 2X cores per socket, compared to the previous generation of HPE storage solutions, and unmatched storage bandwidth, which will enable HPE to deliver fast, consistent performance with industry leading data efficiency. Both companies hope to generate good sales with this product in the near-term.
Recent Financial Results
QCOM’s non-GAAP revenue increased 52.2% year-over-year to $7.93 billion for its fiscal second quarter, ended March 28, 2021. Its non-GAAP net income came in at $2.19 billion, up 115.3% from the year-ago period. Its non-GAAP EPS came in at $1.90, up 115.9% year-over-year.
For the first quarter, ended March 27, 2021, AMD’s non-GAAP revenue was $3.45 billion, which represents a 92.9% increase from the prior-year quarter. The company’s non-GAAP net income for the quarter was $642 million, up 189.2% from the prior-year quarter. Its non-GAAP EPS came in at $0.52, up 188.9% year-over-year.
Past and Expected Financial Performance
QCOM’s revenue and EBITDA grew at CAGRs of 9.3% and 17%, respectively, over the past three years. The company’s revenue is expected to increase 30.2% for the next quarter, ending September 30, 2021, and 48.5% in fiscal 2021. QCOM’s EPS is expected to increase 40% for the next quarter and 85.2% in 2021. Also, its EPS is expected to grow at a 27.3% rate per annum over the next five years.
In comparison, AMD’s revenue and EBITDA grew at CAGRs of 25.9% and 78.2%, respectively, over the past three years. Analysts expect AMD’s revenue to increase 48.6% for the quarter ending September 30, 2021, and 50.9% in 2021. Its EPS is expected to increase 36.6% for the next quarter and 68.2% in 2021. AMD’s EPS is expected to grow at a 28.3% rate per annum over the next five years.
Profitability
QCOM’s $29.41 billion trailing-12-month revenue is 2.58 times higher than AMD’s $11.42 billion. Moreover, QCOM is slightly more profitable with a 60% gross profit margin versus AMD’s 44.79% .
Also, QCOM’s ROE and ROA of 153.3% and 16.1%, respectively, compare favorably with AMD’s 60.6% and 14.7% .
Valuation
In terms of forward EV/S, AMD is currently trading at 6.54x, 34.8% higher than QCOM’s 4.85x. In terms of forward EV/EBITDA also, AMD’s 27.52x is 116.7% higher than QCOM’s 12.70x.
So, QCOM is the more affordable stock.
POWR Ratings
QCOM has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, AMD has an overall C rating, which represents Neutral. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
AMD has a C grade for Quality. This is justified, owing to its 44.7% gross profit margin, which is 7.8% lower than the 48.6% industry average. QCOM, in comparison, has a B grade for Quality. Its 59.9% gross profit margin is 23.4% higher than the 48.6% industry average. However, AMD has a C grade for Value. This reflects its 27.52x forward EV/EBITDA, which is 59.6% higher than the 17.24x industry average. QCOM has a B grade for Value, which is consistent with its 12.70x forward EV/EBITDA, which is 26.4% lower than the 17.24x industry average.
Of the 98 stocks in the B-rated Semiconductor & Wireless Chip industry, QCOM is ranked #7, and AMD is ranked #74.
In addition to the POWR Ratings grades we’ve just highlighted, we’ve rated both AMD and QCOM for Momentum, Stability, Sentiment and Growth. Click here to see the additional ratings for QCOM. Also, get all of AMD’s ratings here.
The Winner
With the increasing application of semiconductors across several industries, the semiconductor industry is expected to witness exponential growth. And while both QCOM and AMD are well positioned to benefit from the industry tailwinds, QCOM’s relatively lower valuation, higher earnings potential and impressive growth prospects make it a better buy.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about top-rated stocks in the B-rated Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
QCOM shares were trading at $136.20 per share on Monday afternoon, up $1.58 (+1.17%). Year-to-date, QCOM has declined -9.71%, versus a 13.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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