The increased adoption of consumer electronics, automotive, industrial tools, and networking products created high demand for semiconductors since the pandemic, creating a global chip shortage. However, increased government and corporate investments have allowed companies to increase their production capacity to address the shortage. Global semiconductor industry sales increased 23.5% from the prior-year period in November 2021, with 1.05 trillion cumulative annual total of semiconductors sold through November 2021 ─ the highest in the industry.
Impressive breakthroughs in the industry, advanced technologies used in the chipmaking process, and the possibility of the passage of the $52 billion CHIPS Act in the near term make the industry’s long-term growth prospects bright. Growing investor optimism in this space is evident in the SPDR S&P Semiconductor ETF’s (XSD) 22.8% gains over the past three months, versus the SPDR S&P 500 Trust ETF’s (SPY) 10.7% returns. The global semiconductor chips market is expected to grow at 7.8% CAGR and reach $553.60 billion by 2026.
NVIDIA Corporation (NVDA) and Himax Technologies, Inc. (HIMX) are two prominent players in the semiconductor industry. NVDA designs and manufactures computer graphics processors, chipsets, and related multimedia software used in the gaming, professional visualization, data center, and automotive markets. In comparison, Taiwan-based HIMX is a semiconductor solution provider that manufactures display driver integrated circuits, digital camera solutions, and timing controllers used in many consumer electronics devices.
While HIMX surged 45.4% over the past three months, NVDA has gained 22%. Which of these stocks is a better pick now?
On November 9, 2021, NVDA released the NVIDIA Omniverse Replicator, a powerful synthetic-data-generation engine that produces physically simulated synthetic data for training deep neural networks. It introduced two applications for generating synthetic data for hosting the digital twin of autonomous vehicles and manipulation robots. Expected to launch next year, NVDA is looking forward to helping developers create large and diverse physically accurate datasets to build high-quality, high-performing, and safe datasets, which is essential for AI.
On December 17, 2021, HIMX gave a product update saying that it produced over 1 million units of the second generation automotive in-cell TDDI (Touch and Display Driver Integration), HX83192 series, entered mass production in the third quarter after being broadly adopted by vehicle manufacturers, Tier-1 suppliers and panel makers across all major automotive markets for new car models. HIMX expects sales of its second-generation automotive TDDI to grow exponentially moving forwards.
Recent Financial Results
NVDA’s total revenue for its fiscal 2022 third quarter, ended September 30, 2021, increased 50.3% year-over-year to $7.10 billion. The company’s non-GAAP gross profit came in at $4.76 billion, representing a 53.8% year-over-year improvement. Its non-GAAP income from operations came in at $3.39 billion for the quarter, indicating a 69.9% rise from the prior-year period. NVDA’s non-GAAP net income came in at $2.97 billion, up 62.1% from the year-ago period. Its non-GAAP EPS increased 12.5% year-over-year to $1.17. The company had $1.29 billion in cash and cash equivalents as of October 31, 2021.
For its fiscal 2021 third quarter, ended September 30, 2021, HIMX’s revenues increased 75.4% year-over-year to $420.94 million. The company’s gross profit came in at $216.73 million, representing a 304.3% rise from the prior-year period. HIMX’s operating income came in at $148.24 million for the quarter, up 1469.7% from the prior-year period. While its net profit increased 1304.8% year-over-year to $118.72 million, its EPS increased 1260% to $0.68. The company had $229.20 million in cash and cash equivalents as of September 30, 2021.
Past and Expected Financial Performance
NVDA’s EBITDA and net income have increased at CAGRs of 26.5% and 20.5%, respectively, over the past three years. The company’s EPS grew at a CAGR of 20.1% over the past three years.
Analysts expect NVDA’s EPS to increase 73.6% year-over-year for the fiscal year 2022 and 20% in 2023. Its revenue is expected to grow 60% year-over-year for fiscal 2022 and 19% in 2023.
In comparison, HIMX’s EBITDA and net income have grown at CAGRs of 166.4% and 139.4%, respectively, over the past three years. The company’s EPS increased at a CAGR of 139.9% over the past three years.
HIMX’s EPS is expected to grow 721.2% year-over-year in the fiscal year 2021 and 10.3% in 2022. The company’s revenue is expected to increase 74.2% year-over-year in fiscal 2021 and 11.5% in 2022.
In terms of forward EV/Sales, NVDA is currently trading at 27.29x, which is 1441.8% higher than HIMX’s 1.77x. In terms of non-GAAP P/E, HIMX’s 5.25x compares with NVDA’s 69.51x.
NVDA’s trailing-12-month revenue is almost 17.7 times HIMX’s. However, HIMX is more profitable, with a 55.4% return on equity versus NVDA’s 41.9%.
Furthermore, HIMX’s ROA and ROTC of 23.7% and 33.1% compare with NVDA’s 15.9% and 18.3%, respectively.
While HIMX has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, NVDA has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both NVDA and HIMX have a B grade for Growth, consistent with their impressive growth over the past year. NVDA’s EBITDA increased 91.7% year-over-year, while HIMX’s EBITDA grew 1131.6% during the period.
HIMX has an A grade for Value, in sync with its lower-than-industry valuations. HIMX has a 1.77 forward EV/Sales ratio, 58% lower than the 4.22x industry average. NVDA’s D grade for Value reflects its overvaluation. NVDA’s 27.29 forward EV/Sales multiple is 546% higher than the industry average of 4.22x.
Of 99 stocks in the A-rated Semiconductor & Wireless Chip industry, HIMX is ranked #42, while NVDA is ranked #67.
Beyond what we have stated above, our POWR Ratings system has also rated NVDA and HIMX for Quality, Momentum, Stability, and Sentiment. Get all NVDA ratings here. Also, click here to see the additional POWR Ratings for HIMX.
As the industry is poised to grow substantially in the upcoming years, both NVDA and HIMX should benefit. However, we think relatively lower valuation and higher profit margins make HIMX a better buy here.
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 access the top-rated stocks in the Semiconductor & Wireless Chip industry.
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NVDA shares . Year-to-date, NVDA has declined -0.41%, versus a 0.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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