NVIDIA Corporation (NVDA) designs and manufactures computer graphics processors, chipsets, and related multimedia software. The company’s products are used in the gaming, professional visualization, datacenter, and automotive markets.

Intel Corporation (INTC) designs, manufactures, and sells computer products and technologies that deliver networking, data storage and communication platforms. The company’s products include microprocessors, chipsets, embedded processors and microcontrollers, flash memory, graphic, network and communication, systems management software, conferencing, and digital imaging products.

An increasing need for tech products and solutions in remote work structures has heightened the demand for semiconductor chips. Furthermore, the accelerated integration of technology in virtually every industry has led to overwhelming demand for semiconductors globally, creating an acute shortage.

However, government policy support and private capital investments should help the semiconductor industry increase supply to match the current level of demand soon. The global semiconductor market is expected to grow at a 4.7% CAGR over the next six years to hit $726.73 billion by 2027.

While INTC has lost 3.1% over the past month, NVDA advanced 1.4%. However, in terms of their performance over the past six months, INTC is a clear winner with 21% gains versus NVDA’s 18.6% returns. But, which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Semiconductor Industry Report for 2021

Latest Movements

This month, using Lenovo Group’s (LNVGY) Lenovo ThinkStation P620 powered by NVIDIA RTX A6000 graphics, car manufacturer Aston Martin (AML) created the extended reality of its Aston Martin DBX luxury SUV that enables users to explore the vehicle without being physically present in dealerships or offices. Both NVDA and LNVGY hope to continue their partnership with Aston Martin.

Also this month, NVDA launched its GeForce RTX laptops from the world’s top manufacturers that deliver real-time ray tracing and AI-based DLSS to the users. Being twice as fast as previous-generation systems, delivering smooth, 60 frames per second gameplay at 1080p, NVDA hopes the laptop’s exceptional performance will generate good sales, mostly to gamers and creators.

On May 18, Toyota Motor Corporation (TM) chose Mobileye, an INTC subsidiary in Israel, and ZF Group, a German car parts maker, to develop advanced driver-assistance systems (ADAS) for use in multiple vehicle platforms beginning in the next few years. Combining Mobileye EyeQ4 vision-computing system-on-chips (SoCs) with ZF’s Gen 21 mid-range radar technology in ZF’s automotive cameras, will help prevent and mitigate collisions while yielding best-in-class lateral and longitudinal vehicle control in TM vehicles. Both companies hope to create a long-standing partnership with TM.

And on May 11, INTC launched its new 11th Generation Intel Core H-series mobile processors, led by the flagship Intel Core i9-11980HK SoCs, that delivers the highest-performance in laptops for gamers, content creators and business professionals, reaching speeds of up to 5.0GHz. By introducing innovative features that help to deliver industry-leading mobile performance, INTC hopes to witness good sales in the near-term.

Recent Financial Results

NVDA’s revenue for its fiscal year 2022, first quarter, ended May 2, 2021, increased 83.8% year-over-year to $5.66 billion. The company’s non-GAAP gross profit increased 84.9% year-over-year to $3.75 billion. Its non-GAAP operating income came in at $2.56 billion, up 112.2% from the prior-year period. While its non-GAAP net income increased 106.5% year-over-year to $2.31 billion, its non-GAAP EPS increased 103.3% year-over-year to $3.66. The company had cash and cash equivalents of $978 million, as of May 2, 2021.

For its fiscal year 2021 first quarter, ended March 27, 2021, INTC’s non-GAAP operating margin was 32.8%, which represented a 130-basis-point rise sequentially. The company’s revenue from its IoT segment increased 13.5% year-over-year to $1.29 billion. And its revenue from its Client Computing Group increased 8.5% year-over-year to $10.61 billion. The company had cash and cash equivalents of $5.19 billion as of March 27, 2021.

Past and Expected Financial Performance

NVDA’s revenue and net income grew at CAGRs of 19.7% and 12.4%, respectively, over the past three years. The company’s EPS has increased at a 12.7% CAGR over the past three years.

Analysts expect NVDA’s revenue to increase 44.8% year-over-year for its fiscal year 2022 second quarter (ending July 31, 2021), 36.7% in the current year ending January 2022 and 9.8% in its next fiscal year ending January 2023. Its EPS is expected to increase 51.2% year-over-year for the second quarter, 33.5% for the current year and 15.4% next year. NVDA’s EPS is expected to grow at a rate of 22.2% per annum over the next five years.

In comparison, INTC’s revenue and net income grew at CAGRs of 6.7% and 18.8%, respectively, over the past three years. The company’s EPS has increased at a 24.6% CAGR over the past three years.

Analysts expect INTC’s revenue to decline 9.7% in its fiscal year 2021 second quarter (ending June 30, 2021), 6.7% in the current year ending December 2021, and marginally in the next fiscal ending December 2022. Its EPS is expected to decline 12.8% year-over-year for the second quarter, 12.7% for the current year, and 1.6% next year. However, the stock’s EPS is expected to grow at a 5.4% rate per annum over the next five years.

Profitability

INTC’s trailing-12-month revenue is 4.7 times NVDA’s. INTC is also more profitable, with a 44.6% EBITDA margin compared to NVDA’s 34.9%.

Also, INTC’s 29.1% EBIT margin compares well with NVDA’s 28.3%.

Valuation

In terms of forward non-GAAP  P/E, NVDA is currently trading at 47.04x, which is 283.7% higher than INTC, which is currently trading at 12.29x. INTC’s 3.32x forward EV/sales is significantly lower than NVDA’s 16.62x.

Also, in terms of forward EV/EBITDA, NVDA’s 50.44x is 576.1% higher than INTC’s 7.46x.

Thus, INTC looks more affordable here.

POWR Ratings

While NVDA has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system, INTC has an overall B rating, which equates to Buy. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Both stocks have a B grade for Quality, which is consistent with their higher-than-industry profitability ratios.

In terms of Value, INTC has been graded an A. This is justified because the company’s 12.29x  non-GAAP forward P/E value is 51.9% lower than the 25.55x industry average. In comparison, NVDA’s Value Grade of D reflects its relative overvaluation. The company’s 47.04x non-GAAP forward P/E is 84.2% higher than the 25.55x industry average.

Of 98 stocks in the B-rated Semiconductor & Wireless Chip industry, NVDA is ranked #70, while INTC is ranked #21.

Beyond what we’ve stated above, our POWR Ratings system has also rated both NVDA and INTC for Growth, Momentum, Stability, and Sentiment. Get all NVDA ratings here. Also, click here to see the additional POWR Ratings for INTC.

The Winner

Given the industry tailwinds, we think both NVDA and INTC can be considered good long-term investments due to their global brand recognition and impressive product launches over the past year. However, we believe INTC is a better buy based on its relatively lower valuation and higher profitability.

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.

Click here to checkout our Semiconductor Industry Report for 2021

NVDA shares were trading at $621.19 per share on Thursday afternoon, down $6.81 (-1.08%). Year-to-date, NVDA has gained 19.00%, versus a 12.52% 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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