The Nasdaq Compound the index level is down about 25% since the start of the year, and many semiconductor stocks have seen huge sell-offs during 2022 trading. a protracted recession and other macroeconomic pressures affecting the broader market, manufacturing issues and geopolitical risk factors also pushed investors out of semiconductor stocks.
Nvidia (INTC 2.31%) and Intel (NVDA 2.84%) are the top chip companies that have seen big sell-offs, and their shares are now trading down around 40% and 53% this year, respectively. Which of these semiconductor players is the best buy under current bear market conditions? Read on for different takes from two Motley Fool contributors.
Nvidia has proven its ability to innovate
Parkev Tatevosyan: A proven ability to innovate is one of the factors I put in mind when considering investing in a technology company. It means more than just developing one great product or service. Nvidia has undoubtedly proven its innovation capabilities by repeatedly improving its graphics processing units (GPUs). These highly sought-after computer chips power many gaming devices, servers and cockpit displays in cars today.
Strong customer demand propelled Nvidia’s revenue from $4.1 billion in 2014 to $26.9 billion in its final year. Of course, sales boomed after the pandemic hit, as people invested in home offices and gamed more often, and digital-native businesses needed more server capacity. Nvidia has capitalized on changing consumer behavior, selling its GPUs at high prices and generating a gross profit margin of over 62% for three consecutive years.
Indeed, Nvidia’s hard-to-replicate products have helped the company grow earnings per share at a compound annual rate of 32.3% over the past 10 years. To be sure, Nvidia faces near-term headwinds as economies have reopened and consumer behavior has rapidly shifted again. Additionally, Nvidia chip sales are highly correlated to cryptocurrency prices as they can help individuals earn digital assets.
These two red flags for Nvidia could slow sales and earnings in the coming quarters. Still, long-term investors could take the opportunity to pick up shares of this proven innovator at lower prices.
Intel might be the safest stock in today’s turbulent market
Keith Noonan: Intel has struggled due to weak demand and margins and competition from Advanced micro-systems in its core CPU and server product categories. The company’s second-quarter performance was admittedly quite disappointing, with non-GAAP (adjusted) revenue down 17% year-over-year to $15.3 billion and adjusted earnings per share down 79%. At the same time, Chipzilla barely has a growth-dependent valuation, and its shares are trading at just 13.5 times this year’s expected earnings.
Intel also pays a large dividend, with its current yield standing at around 4.7%. Whether or not the company should cut payouts and focus resources on growth initiatives is one that investors seem split on, but its ability to support the payout has improved thanks to financing options and funding from recently adopted CHIPS and science. Law. The stock’s high yield could provide a short-term buffer if volatility continues to disrupt the broader market.
Intel is preparing to improve its competitive position in key categories and its decision to guarantee early access to ASML CompanyNext-gen semiconductor manufacturing machinery might suggest it has some promising chip designs that will help it start making a comeback in the next few years.
Chipzilla’s product portfolio looks weaker than Nvidia’s, and its recent downturn in business is more dramatic, but Nvidia is still trading at around 41 times this year’s expected earnings and 12.6 times expected sales, even after big sales. Intel’s more conservative valuation and turnaround potential could make it the best buy in today’s market.
Which semiconductor stock is the best buy?
Nvidia’s strengths in high-performance GPUs and chips that can be used for data centers, artificial intelligence, machine vision and other applications have helped it grow rapidly and generate higher margins in recent years. years. The company’s position in the overall semiconductor industry looks stronger than Intel’s, and Nvidia is probably the best stock for growth-oriented investors.
But if you’re worried that the current Nasdaq bear market will last for a while, Nvidia could fall further from current valuation levels, and Intel could be the best buy. For investors who prefer to invest in more conservatively valued companies with turnaround potential, Intel is probably the best portfolio. This is a case where choosing between stocks should come down to your personal risk appetite and assessing the relationship between each company’s respective valuation and growth prospects.
Keith Noonan has no position in the stocks mentioned. Parkev Tatevosian has no position in the stocks mentioned. The Motley Fool holds positions and recommends ASML Holding, Advanced Micro Devices, Intel and Nvidia. The Motley Fool recommends the following options: $57.50 long calls on Intel in January 2023 and $57.50 short puts on Intel in January 2023. The Motley Fool has a disclosure policy.
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