The semiconductor industry has proven its resilience in the face of economic weakness stemming from the COVID-19 pandemic. Companies in the sector have capitalized on the pandemic based on an increased societal dependence it has created on technology that requires microchips to operate. Though the industry is currently facing supply constraints, the global semiconductor market is set to witness robust, decade-long growth due to fast-paced development of technologies that include artificial intelligence (AI), 5G, cloud computing, IoT and autonomous driving.
As a result, ASML Holding N.V. (ASML) and QUALCOMM Incorporated (QCOM), two of the leading semiconductor manufacturing companies, have been stealing the spotlight. Both the stocks have generated decent returns over the past three years.
While ASML returned 165% over this period, QCOM gained 125.6%. In terms of year-to-date performance, ASML is a clear winner with 10.6% returns versus QCOM’s 14.8% loss.
But which of these stocks is a better pick now? Let’s find out.
Click here to checkout our Semiconductor Industry Report for 2021
Business Structure and Latest Movements
ASML is one of the world’s leading manufacturers of chip making equipment. The company develops, produces, markets, and services advanced semiconductor equipment systems. The company holds a near-monopoly in lithography related systems for memory and logic chipmakers. ASML provides extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography systems comprising immersion and dry lithography solutions.
ASML and RWE, which is one of the world’s leading renewable energy companies and a major player in global energy trading, recently signed a power purchase agreement (PPA). Under the terms of the 10-year agreement, ASML will receive 257 gigawatt hours of green electricity per year. Further, last November, ASML completed the acquisition of Berliner Glas Group, one of the world’s leading providers of optical key components, assemblies and systems, high-quality refined technical glass and glass touch assemblies.
QCOM develops and commercializes foundational technologies and products that are used in mobile devices and other wireless products, including network equipment, broadband gateway equipment, consumer electronic devices, and other connected devices worldwide. It operates through two segments–Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL).
QCOM recently showcased the accelerated 5G ecosystem expansion and rich applications enabled by 5G millimeter wave (mmWave) at MWC Shanghai. The 5G mmWave Zone is another developmental milestone that will help the mobile industry speed up commercialization of 5G mmWave in China to facilitate utilizations of the full potential of 5G. QCOM also recently collaborated with Bharti Airtel, India’s premier communications solutions provider, in accelerating 5G in India. In fact, Airtel is India’s first telecom to deliver 5G over a LIVE commercial network.
Recent Financial Results
In the fourth quarter, ended December 31, 2020, ASML reported net sales of €4.25 billion, increasing 5.4% year-over-year. This was mainly due to additional DUV shipments and upgrade opportunities. ASML shipped nine EUV systems and recognized revenue for eight systems during the quarter. Its net bookings were €4.2 billion, which includes €1.1 billion from EUV systems. The company sold 73 million units of new lithography systems, compared to 57 million in the previous quarter. ASML delivered EPS of €3.23, surging 20% versus the prior year value of €2.69.
In QCOM’s fiscal first quarter (ended December 27, 2020), the company’s revenue increased 62% year-over-year to $8.24 billion. This was due primarily due to strong 5G demand in handsets and growth in its RF front-end, automotive and IoT. In fact, RF front-end revenues soared 157% during the quarter and contributed 13% to the overall top-line, further driving record earnings in QCOM’s chip business. Its adjusted EPS was $2.17, surging 119% versus the year-ago value of $0.99.
Past and Expected Financial Performance
ASML’s revenue and EPS have grown at CAGRs of 16% and 21%, respectively, over the past three years.
The market expects ASML’s revenue to increase 70.5% in the current quarter (ending March 31, 2021), 33.2% in the current year and 10.9% next year. The company’s EPS is expected to grow 2.7% in the current quarter, 40.2% in the current year and 18.2% next year. In addition, its EPS is expected to rise at an average rate of 17.1% per annum over the next five years.
In comparison, QCOM’s revenue has grown at a CAGR of 6.1%, over the past three years.
The market expects QCOM’s revenue to rise 46.3% in the current quarter (ending March 31, 2021), 44.3% in the current year and 7.7% next year. The company’s EPS is expected to improve 88.6% in the current quarter, 74.2% in the current year and 10.5% next year. Also, QCOM’s EPS is expected to grow at a rate of 24.5% per annum over the next five years.
Profitability
QCOM’s trailing-12-month’s revenue is more than 1.5 times ASML’s. Also, QCOM is more profitable, with a gross profit margin of 60.2% versus ASML’s 48.6%.
QCOM’s ROE and ROA of 113.1% and 13.7%, respectively, compare favorably with ASML’s 26.9% and 10.2%.
Valuation
In terms of forward p/s, ASML is currently trading at 43.43x, 120.2% more expensive than QCOM, which is currently trading at 19.72x. QCOM is less expensive in terms of trailing-12-month p/s also (5.48x versus 13.11x).
In terms of trailing-12-month’ price/cash flow, ASML’s 39.39x is significantly higher than QCOM’s 18.63x.
QCOM looks much more affordable here.
POWR Ratings
While ASML has an overall rating of C, which translates to Neutral in our proprietary POWR Ratings system, QCOM has an overall A rating, which equates to a Strong Buy.
In terms of Value Grade, QCOM has been graded a B, given its lower-than-industry p/e ratio. In comparison , ASML’s Value Grade of F is reflective of its stretched valuation.
QCOM has a Growth Grade of A, which is consistent with its improving financials over the coming years. In contrast, ASML has been graded C for Growth.
Of 99 stocks in the Semiconductor & Wireless Chip industry, QCOM is ranked #6 while ASML is ranked #46
Beyond what I’ve stated above, our POWR Ratings system has also rated both ASML and QCOM for Momentum, Stability Sentiment, and Quality. Get all the ASML ratings here. Also, Click here to see the additional POWR Ratings for QCOM.
The Winner
The global semiconductor market grew 5.4% in 2020, according to IDC, and could grow another 7.7% to $476 billion in 2021. Rapidly evolving developments in the field of AI and 5G should generate high demand for microchips. Hence, semiconductor companies have begun witnessing a supply shortage due a to big demand for electronics, shifting business models, which include outsourcing production, and the effects of former President Donald Trump’s trade policies. However, both ASML and QCOM should benefit as digitalization and edge computing drive the world’s next industrial revolution.
QCOM proved to be a better buy based on the factors discussed here. QCOM is at the forefront of the 5G revolution and has already begun the deployment of the first-ever 5G mmWave network. The company is collaborating with telecom leaders worldwide to accelerate 5G ecosystem expansion. We think QCOM’s continuing innovation gives it an edge over its peers and makes it better positioned to meet the rising demand for chips across multiple industries.
Click here to learn about other top-rated Semiconductor & Wireless Chip stocks.
Click here to checkout our Semiconductor Industry Report for 2021
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ASML shares were trading at $543.11 per share on Thursday morning, up $19.78 (+3.78%). Year-to-date, ASML has gained 11.36%, versus a 5.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
More Resources for the Stocks in this Article
| Ticker | POWR Rating | Industry Rank | Rank in Industry |
| ASML | Get Rating | Get Rating | Get Rating |
| QCOM | Get Rating | Get Rating | Get Rating |
