NVIDIA Corporation (NVDA) and Qualcomm Incorporated (QCOM) are two well established semiconductor chipmakers. Santa Clara-based NVDA operates as a visual computing company through two segments – GPU and Tegra Processor. San Diego-based QCOM is involved in the development of foundational technologies and products used in mobile devices and other wireless products. It operates through three segments – Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), and Qualcomm Strategic Initiatives (QSI).
The ramp up of 5G deployment is setting the stage for improved internet experiences. So, stocks such as NVDA and QCOM are set to witness robust demand for their chips, which are needed in 5G-enabled devices. With top cloud companies deploying their AI computing and 5G platforms, we think these two companies should continue to grow this year and beyond.
While NVDA has returned 114.8% over the past year, QCOM has gained 73.1%. In terms of performance over the past six-month, QCOM is the clear winner with 72.4% returns versus NVDA’s 34.6%. But which of these stocks is a better pick now? Let’s find out.
This month, NVDA introduced its second-generation NVIDIA Ampere architecture to gamers worldwide. This formidable upgrade should help the company benefit from substantial demand from gamers worldwide because it can handle cutting-edge titles such as Cyberpunk 2077 and Fortnite on its platform.
Also this month, the company joined hands with NIO to develop NVIDIA DRIVE Orin system-on-a-chip (SoC) for NIO’s new generation of electric vehicles. This should accelerate NVDA’s growth in the high-performance computing and artificial intelligence market.
Meanwhile, QCOM announced on January 13 that it has entered a definitive agreement to acquire NUVIA for approximately $1.4 billion. With 5G accelerating the convergence of mobility and computing, this acquisition should position QCOM as the preferred platform for the future of connected computing.
The company also announced last week the expiration of its exchange offer for 961.43 million of 1.3% Notes due 2028, and $1.25 billion of 1.65% Notes due 2032.
Recent Financial Results
In the fiscal third quarter ended October 25, 2020, NVDA’s revenue increased 56.8% year-over-year to $4.73 billion, attributable primarily to an increase in gaming and data center revenue. The company’s net income grew 66.3% from the year-ago value to $1.83 billion, while its EPS rose 63.5% year-over-year to $2.91.
NVDA’s gaming revenue increased 37% year-over-year to $2.27 billion, while data center revenue grew 162% from the year-ago value to $1.90 billion over this period.
QCOM’s revenue for the fiscal fourth quarter ended September 25, 2020, increased 73% year-over-year to $8.35 billion. The company’s non-GAAP net income grew 76% from a year-ago value to $1.67 billion, while its EPS rose 86% year-over-year to $0.78 over this period.
Past and Expected Financial Performance
NVDA’s revenue and net income grew at a CAGR of 18.1% and 14%, respectively, over the past three years. The company’s EPS grew at a CAGR of 15.2% over this period.
Analysts expect NVDA’s revenue to increase 55.1% in the current quarter, 51% in the current year, and 20.6% next year. NVDA’s EPS is expected to grow 48.1% in the current quarter, 67.9% in the current year and 20.1% next year. Moreover, its EPS is expected to grow at a rate of 22% per annum over the next five years.
In comparison , QCOM’s revenue and net income grew at a CAGR of 1.9% and 28.6%, respectively, over the past three years. The CAGR of the company’s EPS has been 40.2%.
Analysts expect the company’s revenue to increase 62.9% in the current quarter, 39.8% in the current year and 8.2% next year. The company’s EPS is expected to grow 110.1% in the current quarter, 70.2% in the current year and 11.9% next year. QCOM’s EPS is expected to grow at a rate of 24.2%
per annum over the next five years.
QCOM’s trailing-12-month revenue is 1.59 times NVDA’s. But NVDA is more profitable with a gross profit margin of 63.7% versus QCOM’s 60.7%.
However, QCOM’s ROE of 94.6% compares favorably with NVDA’s 28.8%.
In terms of trailing-12-month P/E, NVDA is currently trading at 61.43x, 63.1% more expensive than QCOM, which is currently trading at 37.66x. Its forward PEG of 2.67x is 94.9% higher than QCOM’s 1.37x.
Thus, QCOM is the more affordable stock here.
While NVDA is rated “Buy” in our proprietary POWR Ratings system, QCOM is rated “Strong Buy.” Here are how the four components of overall POWR Rating are graded for NVDA and QCOM:
NVDA has an “A” for Trade Grade and Industry Rank, a “B” for Buy & Hold Grade, and a “D” for Peer Grade. In the 99-stock Semiconductor & Wireless Chip industry, it is ranked #69.
QCOM has an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank, and a “D” for Peer Grade. It is ranked #4 of 99 stocks in the same industry.
While both NVDA and QCOM are good long-term investments considering their market dominance, QCOM is a cheaper option for benefitting from the semiconductor industry’s growth. Moreover, QCOM’s superior financials and higher profitability we believe should help it perform better than NVDA.
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NVDA shares were trading at $535.42 per share on Thursday afternoon, down $5.85 (-1.08%). Year-to-date, NVDA has gained 2.53%, versus a 1.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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