Decade-high inflation, consecutive rate hikes, and slowing demand have marred the optimal performance of the semiconductor and chip industry. In September, global semiconductor sales hit the lowest level of 2022 at $47 billion, down 3% year-over-year.
However, the lucrative CHIPS Act is expected to boost the domestic semiconductor and chip industry. According to President Joe Biden, "It's a game-changer." Moreover, investors' interest in semiconductor and chip stocks is evident from the SPDR S&P Semiconductor ETF's (XSD) 22.1% gains over the past month.
Given the backdrop, it could be wise to consider buying fundamentally sound chip stock Xperi Inc. (XPER). However, Advanced Micro Devices, Inc. (AMD) could be best avoided now, given its bleak fundamentals.
Stock to Buy:
Xperi Inc. (XPER)
XPER provides software and services in the United States. It offers consumers a seamless end-to-end entertainment experience, from choice to consumption, in the home, in the car, and on the go. The company has three business categories: Pay- TV, Consumer Electronics; Connected Car; and Media Platform.
On November 9, 2022, Jon Kirchner, XPER's CEO, said, "The third quarter marked an exciting turning point in our history as we successfully completed our spin-off into a new standalone publicly traded company."
In terms of forward Price/Sales, XPER is currently trading at 0.94x, 64.1% lower than the industry average of 2.62x.
XPER's trailing-12-month gross profit margin of 74.91% is 49.10% higher than the 50.24% industry average. Its trailing-12-month Levered FCF margin of 8.52% is 7.57% higher than the 12.56% industry average.
XPER's revenue came in at $121.64 million for the third quarter that ended September 30, 2022, up 3.3% year-over-year. Its total current assets came in at $336.30 million for the period September 30, 2022, compared to $277.14 million for the period ended December 31, 2021.
Analysts expect XPER's revenue to increase 7.4% year-over-year to $534.49 million in 2023. Its EPS is estimated to grow 15% per annum for the next five years. XPER's shares have gained marginally intraday to close the last trading session at $11.21.
XPER's strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
XPER has a B grade in Growth, Sentiment, and Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #3 out of 92 stocks. Click here to see the additional POWR Ratings for Value, Stability, and Momentum for XPER.
Stock to Avoid:
Advanced Micro Devices, Inc. (AMD)
AMD operates as a semiconductor company worldwide. The company operates in two segments, Computing and Graphics; and Enterprise, Embedded, and Semi-Custom.
AMD's forward EV/Sales of 4.84x is 75.5% higher than the industry average of 2.76x. Its forward Price/Sales of 4.96x is 89.6% higher than the industry average of 2.62x.
AMD's trailing-12-month CAPEX/Sales of 1.80% is 24.2% lower than the industry average of 2.38%, while its trailing-12-month asset turnover ratio of 0.58% is 8.6% lower than the industry average of 0.63%.
AMD’s operating loss came in at $64 million for the third quarter ended September 24, 2022, compared to an income of $948 million in the year-ago period. Moreover, its net income came in at $66 million, down 92.8% year-over-year. Also, its EPS came in at $0.04, down 94.7% year-over-year.
Street expects AMD's revenue to decrease 5.5% year-over-year to $5.56 billion for the quarter ending March 2023. Its EPS is expected to fall 38.1% year-over-year to $0.70 for the same period. Over the past month, the stock has lost 50.4% to close the last trading session at $72.37.
AMD has an overall D rating, which equates to Sell in our POWR Ratings system. It has an F grade for Stability and a D for Growth and Sentiment. AMD is ranked #87 in the same industry.
Click here to see the additional POWR Ratings for AMD (Value, Momentum, and Quality).
XPER shares were trading at $10.93 per share on Monday afternoon, down $0.28 (-2.50%). Year-to-date, XPER has declined -41.74%, versus a -14.94% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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