Chips stocks have been on a roll going back more than a full year. Investors have every reason to be concerned that these coveted stocks are overvalued. However, there is also a solid argument to be made that the never-ending demand for chips means semiconductor stocks don’t have much of a ceiling.

Investors who already own chip stocks and those who aren’t exposed to this segment are both encouraged to perform their due diligence regarding this much-discussed sector. Carefully select a couple of chip stocks for your portfolio or add to your current position and you just might ride the chip wave to riches for years or even decades.
 
Broadcom (AVGO) and NVIDIA (NVDA) are clearly two of the industry’s most important players. However, only one of these stocks is worthy of your investing dollars. Let’s take a closer look at these chipmakers to help investors make the right decision.
 
AVGO

AVGO makes semiconductors used in everything from smartphones to servers, home connectivity systems, and telecom equipment.

AVGO is ranked second of 99 stocks in its space. The Semiconductor & Wireless Chip sector as a whole has a B POWR Rating grade. Click here to find out more about the stocks in this segment.

In terms of specific POWR Rating components, AVGO has Bs in the Growth, Momentum, and Sentiment POWR Rating components. You can learn more about AVGO’s POWR Ratings components grades by clicking here.

AVGO is trading about $14 below its 52-week high of $507.85. The stock’s 52-week low is $343.48. AVGO has a forward P/E ratio of 18.05. For a chipmaker, this ratio is solid, especially when juxtaposed with industry competitors that have comparably high forward P/E ratios.

The analysts are bullish on AVGO. If the stock reaches the analysts’ average target price of $530.62, it will have popped by more than 6%. The stock’s average analyst price target has increased slightly more than $54 in the prior 28 weeks.

NVDA

NVDA is the industry’s darling as its chips are used in PCs, video game consoles, virtual reality technology, and more. Industry insiders insist NVDA’s chips are the gold standard.

NVDA has an elevated forward P/E ratio of 54.43. This ratio is certainly higher than that of most other stocks yet investors should consider the context. NVDA is a chipmaker operating in a space with soaring demand and minimal supply. So don’t let NVDA’s forward P/E ratio steer you away from the stock.

NVDA’s beta is lower than most investors anticipated, largely because there is considerable demand for the stock. NVDA sellers find no shortage of buyers willing to purchase shares of this chip superstar so the stock’s infrequent downward moves will likely continue to be insignificant.

NVDA has a C POWR Rating grade, meaning it is a Hold. Out of the 99 stocks in the Semiconductor & Wireless Chip segment, NVDA is ranked in the bottom third, largely because it appears to be overvalued. Click here to find out more about the stocks in this space.

Check out the stock’s POWR Rating components and you will find it has a D Value grade along with a D Stability grade. Though NVDA has B grades in the Momentum and Quality components, it is still a Hold. Investors are encouraged to click here to find out more about NVDA’s individual POWR Rating component grades.

The top analysts are also slightly bearish on NVDA as the stock has blown prior target prices in surprisingly little time. NVDA’s current average analyst target price is $221.11. If the stock drops to this level, it will have declined by slightly more than one percentage point. However, one analyst has gone as far as setting a target price of $110, meaning NVDA has the potential to be chopped in half from its current price.

Which is the Better Buy?

NVDA is clearly overhyped by the mainstream investment media. The stock is overvalued as evidenced by its D Value POWR Rating component grade. Instead, roll with AVGO, which has a B POWR Rating grade.