The semiconductor industry is experiencing notable growth driven by diverse factors, including an uptrend in the memory sector. Increasing demand for technologies coupled with stable tech needs and government incentives is contributing to the industry's overall expansion.
As the sector expands, I examined two leading semiconductor stocks, Intel Corporation (INTC) and QUALCOMM Incorporated (QCOM), to identify which possesses the potential for superior gains in 2024. Before delving into these stocks, let's explore the factors propelling the industry's growth.
The World Semiconductor Trade Statistics (WSTS) forecasts a 13.1% surge in the global chip market, projecting a valuation of $588 billion for the year. Fueled predominantly by the memory sector, the industry is poised for a remarkable 40% uptrend and is expected to attain around $130 billion in 2024.
This year, a resurgence is anticipated as all chip types are set to witness revenue growth driven by a double-digit expansion in the memory market. That being said, Gartner (IT) projects a 16.8% global semiconductor revenue growth, aiming for a total of $624 billion.
Additionally, the industry is on the brink of a new growth phase, propelled by escalating global demand for Artificial Intelligence (AI) and High-Performance Computing (HPC). This surge aligns with stabilized requirements for smartphones, personal computers, infrastructure, and resilient expansion in the automotive sector.
Increased government incentives are also spurring a surge in fab investments in vital chipmaking regions. The heightened global emphasis on the strategic importance of semiconductor manufacturing for national and economic security stands as a pivotal catalyst for these trends.
Both INTC and QCOM are expected to benefit from the industry’s tailwinds. In terms of price performance, INTC has gained 11.2% over the past month, while QCOM surged 4.8% during the same period. Moreover, INTC witnessed a 30.3% gain over the past three months, while QCOM climbed 24% over the same duration.
Furthermore, INTC jumped 61.2% over the past year, closing the last trading session at $47.47, whereas QCOM has gained 19.3% during the same period, closing the last trading session at $139.31.
But which Semiconductor & Wireless Chip stock could be a better pick? Let's find out.
Recent Developments
On January 3, INTC partnered with DigitalBridge Group, Inc. (DBRG) to establish Articul8 AI, Inc., a pioneering entity poised to provide enterprise clients with a secure, vertically-optimized generative artificial intelligence (GenAI) software platform.
The collaboration positions INTC to tap into the burgeoning demand for advanced, enterprise-grade AI solutions, fortifying its competitive edge in the evolving tech landscape.
On January 4, QCOM unveiled the Snapdragon® XR2+ Gen 2 Platform, a revolutionary single-chip architecture. With 4.3K spatial computing, 90 fps, and enhanced GPU/CPU frequencies, QCOM would gain a competitive edge, catering to the rising demand for MR and VR experiences and solidifying its leadership in the semiconductor industry.
Recent Financial Results
For the fiscal 2023 third quarter that ended September 30, 2023, INTC’s net revenue decreased 7.7% year-over-year to $14.16 billion. Its net income and EPS attributable to INTC reduced 70.9% and 72% from the prior year’s period to $297 million and $0.07, respectively.
Also, as of September 30, 2023, the company’s cash and cash equivalents stood at $7.62 billion, compared to $11.14 billion as of December 31, 2022. Furthermore, total current assets amounted to $43.81 billion, down from $50.41 billion as of December 31, 2022.
For the fiscal 2023 fourth quarter that ended September 24, 2023, QCOM’s cash inflow from operating activities increased 182.8% year-over-year to $4.09 billion. As of September 24, 2023, the company’s cash and cash equivalents came in at $8.45 billion, compared to $2.77 billion as of September 25, 2022. Also, total assets amounted to $51.04 billion, up from $49.01 billion as of September 25, 2022.
Past and Expected Financial Performance
Over the past three years, INTC’s revenue and EBITDA declined at a CAGR of 12.2% and 39.3%, respectively. However, its tangible book value and total assets grew at a CAGR of 22.5% and 9.1%, respectively, over the same time frame.
For the fiscal year that ended December 2023, analysts expect INTC’s revenue to decrease 14.4% year-over-year to $53.98 billion. The company’s EPS for the same period is expected to decline 48.2% from the previous year to $0.95.
QCOM’s revenue and EBITDA rose at respective CAGRs of 15% and 11.1% over the past three years. Furthermore, its net income and EPS increased at a CAGR of 11.6% and 12.4% during the same period.
For the fiscal year ending September 2024, QCOM’s revenue is expected to increase 5.5% year-over-year to $37.80 billion. Likewise, the company’s EPS for the same period is expected to rise 9.5% from the prior year to $9.23.
Valuation
In terms of forward non-GAAP PEG, QCOM is trading at 1.42x, 87.1% lower than INTC, which is trading at 10.97x. In addition, QCOM’s forward EV/EBITDA of 11.54x is 38.7% lower than INTC’s 18.82x.
Profitability
INTC’s trailing-12-month revenue is 1.5 times that of what QCOM generates. However, QCOM is more profitable, with a trailing-12-month gross profit margin of 55.70%, compared to INTC’s 38.14%.
In addition, QCOM’s trailing-12-month EBITDA margin and trailing-12-month net income margin of 29.20% and 20.19% compare with INTC’s 15.69% and negative 3.11%, respectively.
POWR Ratings
INTC has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, QCOM has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. INTC has a C grade for Value, justified by its mixed valuation. In terms of forward Price/Cash Flow, the stock is trading at 19.65x, 12.5% lower than the industry average of 22.46x. However, its forward EV/EBITDA of 18.82x is 20.8% higher than the industry average of 15.58x.
On the contrary, QCOM has a B grade for Value, consistent with its lower-than-industry valuation. In terms of forward Price/Cash Flow and forward EV/EBITDA, the stock is trading at 12.08x and 11.54x, 46.2% and 25.9% lower than the industry averages of 22.46x and 15.58x, respectively.
Furthermore, INTC has a C grade for Quality, which is reflected by its moderate profitability metrics. The stock’s trailing-12-month levered FCF margin of negative 8.47% compares with the industry average of 8.65%. However, its trailing-12-month CAPEX/Sales of 47.21% is significantly higher than the 2.35% industry average.
QCOM, on the other hand, has a B grade for Quality, in sync with its robust profitability. The stock’s trailing-12-month levered FCF margin and trailing-12-month CAPEX/Sales of 27.41% and 4.05% are 216.8% and 72.3% higher than the industry averages of 8.65% and 2.35%, respectively.
Of the 91 stocks in the Semiconductor & Wireless Chip industry, INTC is ranked #39, while QCOM is ranked #9.
Beyond what we've stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view INTC’s ratings. Get all QCOM ratings here.
The Winner
The semiconductor industry is experiencing robust growth, capitalizing on an expanding memory sector, surging demand for AI and high-performance computing, augmented production capacity, government incentives, and heightened recognition of its strategic significance.
Although both INTC and QCOM stand to gain from this growth, QCOM’s lower valuation, heightened profitability and better financial performance in the latest quarter position it as a more favorable investment choice over INTC at present.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
INTC shares were trading at $46.86 per share on Thursday morning, down $0.61 (-1.29%). Year-to-date, INTC has declined -6.75%, versus a -0.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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