Headquartered in Eindhoven, Netherlands, NXP Semiconductors N.V. ‘s (NXPI) product portfolio includes microcontrollers, communication processors, analog and interface devices, radio frequency power amplifiers, and security controllers. In comparison,  California-based NVIDIA Corporation (NVDA) is an artificial intelligence computing company that operates in two segments: Graphics and Compute & Networking.

A global semiconductor shortage has impacted several industries, especially the automotive and consumer electronics industries. However, the shortage of semiconductors is causing chip prices to soar, to the industry’s significant benefit. Moreover, with increasing demand for electric vehicles (EVs), and growing demand for advanced technologies in hybrid working environments, the industry is expected to see great upside. According to a Technavio report, the global semiconductor market is expected to grow at a 4% CAGR between 2020 -2024. Both NXPI and NVDA should benefit as a result.

NVDA stock price has gained 52.2% over the past nine months, while NXPI returned 51.6%. Also, NVDA’s 80% gains over the past year are higher than NXPI’s 76.7% returns. Furthermore, in terms of the past three months’ performance, NVDA is the clear winner, with 33.5% gains versus NXPI’s 9.7% returns.

Click here to checkout our Semiconductor Industry Report for 2021

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On June 28, 2021, NXPI announced a significant industry milestone for 5G energy efficiency with the integration of Gallium Nitride technology in  its multi-chip module platform. This is expected to increase its sales owing to higher demand for its efficient solutions.

NVDA launched TensorRT 8 on July 20. It is the eighth generation of the company’s AI software, which slashes inference time in half for language queries. Greg Estes, the company’s vice president of developer programs, said, “The latest version of TensorRT introduces new capabilities that enable companies to deliver conversational AI applications to their customers with a level of quality and responsiveness that was never before possible.”

Recent Financial Results

For its  fiscal second quarter, ended July 4, 2021, NXPI’s revenue was  $2.60 billion, representing a 42.9% year-over-year increase. Its non-GAAP operating income increased 121% year-over-year to $830 million. Its net income came in at $406 million compared to a $209 million net loss in the prior-year period. Also, the company’s EPS was $1.42 compared to a $0.77 loss in the year-ago period.

NVDA’s revenue increased 84% year-over-year to $5.66 billion for the fiscal first quarter ended May 2, 2021. The company’s non-GAAP operating income grew 112% year-over-year to $2.56 billion. Its non-GAAP net income increased 107% year-over-year to $2.31 billion. Also, its non-GAAP EPS came in at $3.66, up 103% year-over-year.

Past and Expected Financial Performance

NXPI’s EBIT and levered FCF grew at 17.4% and 11.6% CAGRs, respectively, over the past three years. Analysts expect NXPI’s revenue to increase 20.2% for the quarter ending September 30, 2021, and 22.6% in its fiscal year 2021. The company’s EPS is expected to grow 53.1% for the quarter ending September 30, 2021, and 57.9% in its fiscal year 2021. Its EPS is expected to grow at a 16.8% rate per annum over the next five years.

In comparison, NVDA’s EBIT and levered FCF grew at CAGRs of 13% and 15.4%, respectively, over the past three years. The company’s revenue is expected to increase 38% for the quarter ending September 30, 2021, and 49.1% in its fiscal year 2021. Its EPS is expected to grow 43% for the quarter ending September 30, 2021, and 58.2% in fiscal 2021. NVDA’s EPS is expected to grow at a 26.8% rate  per annum over the next five years.

Profitability

NVDA’s trailing-12-month revenue is 2.1 times  NXPI’s. Furthermore, , NVDA is more profitable with a 63.26% and 27.66% gross profit margin and net income margin, respectively, compared to NXPI’s 50.47% and 4.65%.

NVDA’s ROE, ROA, and ROTC of 33.43%, 13.18%, and 15.10%, respectively, compare favorably with NXPI’s 5.14%, 3.06%, and 3.61%.

Valuation

In terms of forward non-GAAP P/E ratio, NVDA is currently trading at 50.15x, which is 142.1% higher than NXPI’s 20.71x.  NVDA’s 49.93x forward EV/EBITDA is 213% higher than NXPI’s 15.95x.

So, NXPI is the more affordable stock.

POWR Ratings

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

NXPI has an A grade for Growth, which is consistent with analysts’ expectations that its EPS will increase significantly in the coming months. On the other hand, NVDA has a B Growth grade, consistent with analysts’ expectations that its EPS will increase modestly in the forthcoming quarters.

Of the 99 stocks in the B-rated Semiconductor & Wireless Chip industry, NXPI is ranked #36, while NVDA is ranked #55.

Beyond what I’ve stated above, we have also rated the stocks for Value, Sentiment, Stability, Momentum, and Quality. Click here to view all the NXPI Ratings. Also, get all the NVDA ratings here.

The Winner

The semiconductor industry is growing exponentially despite the global shortage due to  the rising demand for chips from the automotive and consumer electronics industries. Against this backdrop, even though NXPI and NVDA are expected to benefit in the long run, we think it is better to bet on NXPI now because of its lower valuation and impressive growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.

Click here to checkout our Semiconductor Industry Report for 2021

NXPI shares were trading at $212.96 per share on Wednesday afternoon, up $2.43 (+1.15%). Year-to-date, NXPI has gained 34.71%, versus a 18.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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