Growing digitalization across several industries boosts demand for chips in several applications, including data centers, IoT devices, and smart technologies. Also, the expansion of advanced technologies, such as AI and ML, across several industry verticles requires specialized, powerful chips for processing data and running complex algorithms.
However, waiting for better entry points in semiconductor stocks Advanced Micro Devices, Inc. (AMD) and NVIDIA Corporation (NVDA) could be wise now.
After a challenging year, the semiconductor industry is poised to recover in 2024, with memory and AI leading the charge. A rise in demand for artificial intelligence (AI) and a steady surge in automotive chips will help drive a rebound in global chip sales this year, according to the Semiconductor Industry Association’s (SIA) annual sales data.
The SIA projects global chip sales to increase by 13.1% year-over-year to $595.3 billion this year, compared with a decline of around 8% in 2023.
Besides, growing demand for industrial processing and consumer electronics, rapid urbanization, and rising industrialization are key factors boosting the consumption of semiconductors. Moreover, the increasing penetration of IoT devices, AI, ML, and virtual reality (VR) will drive the industry’s growth in the forthcoming years.
According to the Precedence Research report, the global semiconductor market is anticipated to reach $1.14 trillion by 2033, growing at a CAGR of 7.6% during the forecast period (2024 to 2033).
Meanwhile, the global AI chip market is projected to expand at a CAGR of 28.8% during the forecast period (2024-2032), reaching $191.24 billion by 2032. The surging demand for AI-enabled machines in various industry verticals will aid the market growth. Also, the rising implementation of AI chips in robotics will boost market expansion.
Considering these conducive trends, let’s take a look at the fundamentals of the two Semiconductor & Wireless Chip industry stocks.
Stock #2: Advanced Micro Devices, Inc. (AMD)
AMD is a leading global semiconductor company. It operates through Data Center; Client; Gaming; and Embedded segments. The company provides x86 microprocessors and graphics processing units (GPUs), embedded processors, and semi-custom system-on-chip (SoC) products.
On March 19, 2024, AMD announced that Sony Semiconductor Solutions (SSS) selected its cutting-edge adaptive computing technology for its newest automotive LiDAR reference design. SSS, a global leader in image sensor technology, and AMD joined forces to deliver a powerful and efficient LiDAR solution for use in autonomous vehicles.
On March 5, 2024, AMD announced the AMD Spartan UltraScale+ FPGA family, the newest addition to the extensive portfolio of AMD Cost-Optimized FPGAs and adaptive SoCs.
Spartan UltraScale+ devices offer the industry’s highest I/O to logic cell ratio in FPGAs built in 28nm and lower process technology, deliver up to 30% lower total power consumption versus the previous generation, and contain a robust set of security features in the AMD Cost-Optimized Portfolio. The new launch should bode well for the company.
AMD’s trailing-12-month net income margin and gross profit margin of 3.77% and 50.27% are 39.8% and 3.9% higher than the respective industry averages of 2.69% and 48.41%. However, the stock’s trailing-12-month EBIT margin of 1.77% is 63.3% lower than the industry average of 4.82%.
Over the past five years, AMD’s revenue and EBITDA have grown at CAGRs of 28.49% and 44.07%, respectively.
For the fourth quarter that ended December 30, 2023, AMD’s revenue increased 10% year-over-year to $6.17 billion. However, its non-GAAP operating expenses grew 8.1% from the year-ago value to $1.73 billion. In addition, its non-GAAP net income and non-GAAP EPS were $1.25 billion and $0.77, up 12.6% and 11.6% year-over-year, respectively.
Analysts expect AMD’s revenue and EPS for the first quarter (ended March 2024) to increase 1.8% and 1.5% year-over-year to $5.45 billion and $0.61, respectively. Moreover, the company topped consensus revenue estimates in each of the trailing four quarters.
AMD’s stock has plunged 10.8% over the past month but gained 33.6% over the past three months to close the last trading session at $180.77.
AMD’s mixed prospects are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a C grade for Quality and Momentum. Within the Semiconductor & Wireless Chip industry, AMD is ranked #70 out of 90 stocks.
Click here to access additional ratings of AMD (Growth, Value, Sentiment, and Stability).
Stock #1: NVIDIA Corporation (NVDA)
NVDA provides graphics & compute and networking solutions in the U.S., Taiwan, China, Hong Kong, and internationally. It offers GeForce GPUs for gaming and PCs, Quadro/NVIDIA RTX GPUs for enterprise workstation graphics, vGPU software for virtual computing, and Omniverse software for operating metaverse and 3D internet applications.
On March 18, 2024, NVDA announced a 6G research platform that empowers researchers with a novel approach to develop the next phase of wireless technology. The NVIDIA 6G Research Cloud platform is open, flexible, and interconnected, offering researchers a comprehensive suite to advance AI for radio access network (RAN) technology.
NVDA’s trailing-12-month gross profit margin and trailing-12-month EBITDA margin of 72.72% and 56.60% are 50.2% and 504.6% higher than the industry averages of 48.41% and 9.36%, respectively. However, the company’s trailing-12-month CAPEX/Sales of 1.75% is 24.5% lower than the 2.33% industry average.
Over the past three years, NVDA’s revenue and EBITDA increased at a CAGR of 54% and 81%, respectively. Its net income and EPS grew at respective CAGRs of 90.1% and 90.3% during the period. Moreover, the company’s levered free cash flow rose at a CAGR of 74.6% over the same time frame.
In the fiscal fourth quarter, which ended on January 28, 2024, NVDA’s non-GAAP revenue increased 265.3% year-over-year to $22.10 billion. Its non-GAAP net income and non-GAAP EPS came in at $12.84 billion and $5.16 per share, up 490.6% and 486.4% from the prior year’s period, respectively.
However, as of January 28, 2024, NVDA’s total current liabilities increased to $10.63 billion, compared to $6.56 billion as of January 29, 2023.
The consensus revenue estimate of $111.29 billion for the fiscal year ending January 2025 reflects an 82.7% year-over-year increase. Similarly, the company’s EPS for the current year is expected to grow 91.4% year-over-year to $24.81. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters.
NVDA’s shares have gained 104.4% over the past six months to close the last trading session at $889.64. However, the stock has declined 3.3%.
NVDA’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
The stock has a C grade for Momentum. Within the same industry, NVDA is ranked #19.
In addition to the POWR Ratings we’ve stated above, we also have NVDA ratings for Value, Quality, Sentiment, Growth, and Stability. Get all NVDA ratings here.
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NVDA shares were trading at $897.64 per share on Thursday morning, up $8.00 (+0.90%). Year-to-date, NVDA has gained 81.27%, versus a 10.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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