The semiconductor industry is the birthplace of hardware technology as innovation starts at the chip-level. For the last few decades, Intel Corporation (INTC) has ruled the semiconductor industry with its x86 chips. What made INTC unbeatable was its most advanced manufacturing node technology.

But this advantage has now vanished as the chip giant struggles to bring its 7-nanometer (nm) node online. While INTC is an underperformer, the semiconductor industry is lucrative and bound to benefit from the revolution of 5G, artificial intelligence (AI), and IoT (internet of things).

The VanEck Vectors Semiconductor ETF (SMH) has outperformed the market, growing 35% year-to-date. The winners in this industry are the ones leading the 5G, AI, and IoT race, like NVIDIA (NVDA), Qualcomm (QCOM), and Maxim Integrated Products, Inc. (MXIM).

Intel Corporation (INTC) 

Third-party manufacturer Taiwan Semiconductor Manufacturing Company (TSM) has overtaken INTC in the manufacturing technology race. TSM is already manufacturing 5nm chips and developing 3nm chips. Moreover, rivals Advanced Micro Devices (AMD), NVDA, and QCOM are moving ahead of INTC in the technology race using TSM’s manufacturing node.

In the semiconductor world, the company with the most advanced technology holds the pricing power and gains market share. INTC is gradually losing market share to competitors. Its CPUs (central processing unit) market share has declined to 79.8% in the third quarter from 84.2% in the same quarter last year, according to Mercury Research. Its discrete GPU market share has declined to 64% in the second quarter from 69% in the prior year quarter, according to Jon Peddie Research

Investors are losing patience with INTC’s 7nm delays and rising competition. The stock fell 20% in the last week of July as a six-month delay in 7nm node offset strong second-quarter earnings. The stock barely rose 12% from previous earnings, and its third-quarter earnings miss pulled the stock down 18%.

INTC’s third-quarter revenue fell 5% year-over-year, its highest decline in more than five years, because of a 7% decline in data center revenue. Its operating margin fell to a four-year low of 24.5% from 35.6% last year. Analysts expect its revenue and EPS to fall by 5.8% and 6.7%, respectively, next year.

INTC’s stock is down 22% year-to-date, underperforming the S&P 500 Index, which rose 9%. Hence, it is rated a “Sell” in the POWR Ratings. It holds an “F” for Trade Grade, a “D” for Peer Grade, a “C” for Buy & Hold Grade, and a “B” for Industry Rank. It is also the #70 ranked stock in the Semiconductor & Wireless Chip industry.

NVIDIA Corporation (NVDA)

NVDA has the advantage of designing the most advanced GPUs. Its GPUs have made it a leader in PC gaming and the AI space. INTC is losing the PC GPU market share to NVDA, whose market share rose to 19% in the second quarter from 15% last year. NVDA is also leading in the autonomous driving space. High exposure and technology leadership in all these growing markets is driving NVDA’s revenue at a CAGR of 9%.

The last two years (2018 and 2019) were slow for the entire semiconductor industry as well as NVDA. But the growth picked up for NVDA this year, with the acquisition of data center interconnect solutions provider Mellanox. NVDA is now looking to expand its product portfolio into low-power computing. In September, it announced a $40 billion acquisition of ARM Holdings. ARM leads the smartphone chip market and is now looking to expand into the laptop and data center space.

The ARM deal could help NVDA bring AI to edge devices and make it a leader in the IoT and smartphone space. But the deal could get caught up in regulatory hurdles. Deal or no deal, NVDA’s most advanced AI and graphics technology would continue to drive growth. The analysts expect its revenue and EPS to surge 19% and 22%, respectively, next year.

The stock could soar double-digit when the company releases its third-quarter earnings on November 18. This strong revenue growth has made NVDA’s stock an outperformer, growing 132% year-to-date.

How does NVDA stack up for the POWR Ratings?

B for Trade Grade

B for Buy & Hold Grade

B for Industry Rank

B for overall POWR Rating

The stock is also ranked #15 stock in the 86-stock Semiconductor & Wireless Chip industry.

Qualcomm Inc (QCOM) 

Another winner in the semiconductor world is QCOM, leading the 5G wave with its most advanced 5G modems and smartphone system-on-chips (SoCs). QCOM’s 5G lead even forced Apple (AAPL) to settle a two-year-long licensing dispute and sign a supply agreement. AAPL broke ties with QCOM in 2018 in favor of INTC’s 4G modems. But INTC failed to deliver a 5G modem in time for a 2020 5G iPhone launch. Hence, AAPL returned to QCOM and powered it’s iPhone 12 with QCOM’s 5G modems.

QCOM’s 5G growth story goes beyond smartphones to always-connected PC, automotive, IoT, and fixed wireless access. Its fiscal 2020 revenue surged 12% year-over-year as it won orders from AAPL, and settled its unpaid royalties from Chinese smartphone maker Huawei. Such strong earnings drove QCOM’s stock up 13%.

The next year will likely be the best year for QCOM, as it will be at the peak of the 5G transition. It expects fiscal 2021 first-quarter revenue to surge 62% year-over-year to $8.2 billion, including revenue from AAPL’s iPhone 12. The analysts expect QCOM’s revenue and EPS to surge 38.5% and 10.5%, respectively, in fiscal 2021, ending September 27, 2021.

QCOM’s revenue growth potential drove its stock up 65% year-to-date. QCOM is rated a “Strong Buy” in the POWR Ratings. It holds straight “A”s in Trade Grade, Peer Grade, and Buy & Hold Grade, and a “B” for Industry Rank. It is also the #1 ranked stock in the Semiconductor & Wireless Chip industry.

Maxim Integrated Products, Inc. (MXIM)

MXIM is performing in-line with the semiconductor industry. It has garnered attention since announcing its acquisition by Analog Devices (ADI) for $17 billion. The deal is expected to complete in the summer of 2021. An important aspect of acquisitions is that the target company should remain valuable, while the entire process is worked out.

MXIM makes analog chips, which enjoy high margins. In its latest fiscal 2021 first-quarter earnings, its revenue surged 16% year-over-year on the back of strong demand from the consumer and Automotive sectors. And ADI is acquiring MXIM for its strength in the automotive and data center markets.

ADI’s acquisition is positive news for MXIM shareholders as they will get ADI stock in return for MXIM stock. They will also benefit from the merger synergies. To add to the acquisition optimism was the U.S. election results. Gridlock in the Senate would ease regulatory concerns around any potential tech acquisitions. Hence, tech stocks – MXIM and NVDA— that are under the acquisition process soared almost 16% last week.

While the acquisition is being worked out, analysts expect MXIM to enjoy revenue and EPS growth of 12.8% and 25%, respectively, in fiscal 2021 ending June 27, 2021. MXIM stock has surged 35% year-to-date on the back of its earnings growth.

MXIM is rated a “Strong Buy” in the POWR Ratings. It holds a grade of “A” in Trade Grade, Peer Grade, and Buy & Hold Grade and a “B” for Industry Rank. It is also the #1 ranked stock in the Semiconductor & Wireless Chip industry.

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NVDA shares were trading at $518.93 per share on Tuesday afternoon, down $26.30 (-4.82%). Year-to-date, NVDA has gained 120.84%, versus a 11.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Puja Tayal

Puja is a seasoned writer working with financial publishing companies like Motley Fool Canada and Market Realist. With over 13 years of experience in the field of fundamental research, she brings a blend of comprehensive, well-researched insights into her articles. More...

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