Advanced Micro Devices, Inc. (AMD) and QUALCOMM Incorporated (QCOM) are two prominent players in the semiconductor industry. AMD manufactures microprocessors, chipsets, GPUs, server and embedded processors, semi-custom SoC products, and technology for game consoles and offers assembly, testing, and packaging services.

On the other hand, QCOM is a multinational semiconductor and telecommunications equipment company that develops and delivers products and services based on CDMA technology used in digital wireless communications equipment and satellite ground stations.

The Russia-Ukraine conflict, growing tensions related to Taiwan between China and the United States, and the growing impact of multi-decade high inflation have been hurting the chip industry lately. However, policy support and corporate investments have encouraged domestic chip production. Surging demand helped the industry to register a 21.1% rise in sales in April 2022.

In order to keep pace with the growing demand from various industries, chipmakers are developing advanced chips with lower latency and power consumption to drive device efficiency. The global semiconductor market is expected to grow at a 9.2% CAGR to $893.10 billion by 2029. Therefore, Wall Street analysts expect AMD and QCOM to see solid upsides.

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

Latest Developments

On June 21, 2022, AMD announced the Ryzen Embedded R2000 Series, second-generation mid-range SoC processors optimized for various industrial and robotics systems, machine vision, IoT, and thin-client equipment. This new series is expected to witness high demand in the coming months.

On June 27, 2022, QCOM announced new RFFE modules designed for a wide array of device segments beyond smartphones, including automotive, XR, PCs, wearables, mobile broadband, IoT, and allow for superior Wi-Fi 6E the next-generation standard, Wi-Fi 7, and Bluetooth experiences.

This will help OEMs address industry-specific challenges like development cost and scalability and design products with higher performance, longer battery life, and reduced commercialization time.

Recent Financial Results

For the fiscal 2022 first quarter ended March 26, 2022, AMD’s revenue increased 70.9% year-over-year to $5.89 billion. The company’s non-GAAP gross profit came in at $3.10 billion, up 95.2% from the year-ago period. Its non-GAAP operating income came in at $1.84 billion for the quarter, indicating a 141.1% rise from the prior-year period.

While its non-GAAP net income increased 147.5% year-over-year to $1.59 billion, its non-GAAP EPS grew 117.3% to $1.13. The company had cash and cash equivalents of $4.74 billion as of March 26, 2022.

For its fiscal year 2022 second quarter, QCOM’s non-GAAP revenues ended March 27, 2022, increased 40.8% year-over-year to $11.16 billion. The company’s non-GAAP operating income came in at $4.37 billion, up 63.7% from the year-ago period.

Its non-GAAP net income came in at $3.66 billion, representing a 67.6% rise from the prior-year period. QCOM’s non-GAAP EPS was $3.21, indicating a 69% year-over-year improvement. As of March 27, 2022, the company had $7.17 billion in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, AMD’s revenue, net income, and EPS have increased at CAGRs of 45.7%, 131.9%, and 120.4%, respectively.

AMD’s EPS is expected to increase 57.7% year-over-year in fiscal 2022, ending December 31, 2022, and 12.5% in fiscal 2024. Its revenue is expected to grow 60.1% in fiscal 2022 and 13.5% in fiscal 2023. 

Its EPS is expected to grow at a 28.1% rate per annum over the next five years. The average analyst price target of $133.88 indicates an 81.1% upside potential.

Over the past three years, QCOM’s revenue, net income, and EPS have grown at 22.8%, 66.4%, and 75.1% CAGRs, respectively.

Analysts expect QCOM’s EPS to increase 46.7% year-over-year in fiscal 2022, ending September 30, 2022, and 4.9% in fiscal 2023. Its revenue is expected to grow 33.4% year-over-year in fiscal 2022 and 8.2% in fiscal 2023. 

Its EPS is expected to improve at a rate of 14.3% per annum over the next five years. The average analyst price target of $192.24 indicates a 55.6% upside potential.

Valuation

In terms of non-GAAP forward P/E, AMD is currently trading at 16.86x, 71.7% higher than QCOM’s 9.82x. In terms of forward EV/Sales, QCOM’s 3.2x compares with AMD’s 4.37x.

Profitability

QCOM’s trailing-12-month revenue is 2.1 times that of AMD’s. Moreover, QCOM is also profitable, with a 58.5% gross profit margin versus AMD’s 49.5%.

Furthermore, QCOM’s ROE, ROA, and ROTC of 107.6%, 19.7%, and 30.7% compare with AMD’s 11%, 6.4%, and 7.6%, respectively.

POWR Ratings

While QCOM has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, AMD has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

QCOM has been graded a B for Quality, consistent with its higher-than-industry profitability ratios. QCOM’s 58.5% trailing-12-month gross profit margin is 16.1% higher than the 50.4% industry average. 

AMD’s C grade for Quality reflects its slightly lower-than-industry profit margins. It has a 49.5% trailing-12-month gross profit margin, 1.7% lower than the 50.4% industry average.

QCOM has a B grade for Value, which is in sync with its lower-than-industry valuation ratios. QCOM’s 7.49x forward EV/EBITDA is 35.1% lower than the 11.53x industry average. 

AMD’s C grade for Value is in sync with its slightly higher-than-industry valuation ratios. AMD’s 13.83x forward EV/EBITDA is 20% higher than the 11.53x industry average.

Of the 96 stocks in the B-rated Semiconductor & Wireless Chip industry, QCOM is ranked #9, while AMD is ranked #78.

Beyond what we have stated above, our POWR Ratings system has graded AMD and QCOM for Sentiment, Stability, Growth, and Momentum. Get all QCOM ratings here. Also, click here to see the additional POWR Ratings for AMD.

The Winner

Despite the unfavorable industry backdrop, the heightened demand and increasing investments to enhance chip production should benefit AMD and QCOM. Though Wall Street analysts expect AMD to gain more, relatively lower valuation and higher profitability make QCOM a better buy.

Our research shows that the odds of success increase if one invests in stocks with an overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.

AMD shares . Year-to-date, AMD has declined -48.80%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

More...