NVIDIA (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM) are two bellwethers of the semiconductor market. NVIDIA is the highest maker of discrete GPUs, most of that are utilized in high-end gaming PCs. Qualcomm is the world’s largest producer of cell chipsets and baseband modems.
NVIDIA’s inventory surged 140% over the previous 12 months, crushing Qualcomm’s achieve of simply over 20%. Let’s examine why the GPU maker attracted a stampede of bulls, and whether or not or not it is going to stay a stronger funding than Qualcomm.
Why do the bulls love NVIDIA?
NVIDIA’s gaming GPU enterprise stalled out on the finish of fiscal 2019 (which led to Jan. 2019) because the cryptocurrency mining bubble burst. Nevertheless, these gross sales stabilized and accelerated once more because it launched its new Turing GPUs final 12 months.
In the meantime, demand for NVIDIA’s high-end knowledge middle GPUs, that are used for machine studying and AI tasks, continued rising, particularly within the cloud and HPC (high-performance computing) markets. Its latest introduction of its new Ampere knowledge middle GPUs, alongside with its acquisition of information middle gear maker Mellanox, complement that progress.
The power of these two markets, together with the soundness of its skilled visualization enterprise, partly offset the softness of its cyclical auto enterprise, which primarily gives ARM-based Tegra CPUs for related and driverless vehicles.
NVIDIA’s income and adjusted EPS declined 7% and 13%, respectively, in fiscal 2020, because it labored by way of its cryptocurrency-related points within the first half of the 12 months. Nevertheless, NVIDIA’s income surged 39% yearly within the first quarter of 2021 as its adjusted EPS greater than doubled, buoyed by document gross sales of its knowledge middle GPUs.
Wall Avenue expects NVIDIA’s income to rise 34% this 12 months, because the headwinds dissipate and the tailwinds speed up.
Why aren’t the bulls impressed by Qualcomm?
Qualcomm generates most of its income from its Snapdragon cell chipsets, but it surely generates most of its income from its portfolio of wi-fi licenses, which collects a minimize of each smartphone offered worldwide.
For a few years, Qualcomm sponsored the expansion of its lower-margin chipmaking enterprise with its higher-margin licensing income. Nevertheless, that enterprise mannequin is now being challenged by regulators and OEMs, which declare its licensing charges are too excessive. Rival chipmakers, together with NVIDIA, additionally declare Qualcomm bundled its chips and licenses at decrease costs to pressure its opponents out of the market.
Qualcomm was additionally caught in a triangle of failed acquisitions two years in the past: It fended off Broadcom‘s hostile bid, however failed to buy NXP Semiconductors. Royalty disputes with Apple and Huawei, together with sluggish gross sales of smartphones worldwide, exacerbated the ache.
Consequently, Qualcomm’s adjusted income and earnings declined 14% and 2%, respectively, in fiscal 2019 (which ended final September). However for fiscal 2020, analysts anticipate income to rise 8% with 4% earnings progress, supported by simpler year-over-year comparisons, the decision of its dispute with Apple, and the upcoming launches of latest 5G gadgets.
The dividends and valuations
NVIDIA trades at over 50 occasions ahead earnings and pays a tiny ahead dividend yield of lower than 0.2%. Qualcomm trades at lower than 17 occasions ahead earnings and pays a a lot increased ahead yield of two.8%.
Buyers are paying the next premium for NVIDIA as a result of they anticipate its knowledge middle and gaming companies — that are each higher insulated from the COVID-19 disaster than different markets — to stay sturdy. They’re far much less obsessed with Qualcomm, which continues to be closely depending on the saturated smartphone market, faces unresolved regulatory points, and is focusing extra on massive buybacks than strategic investments or acquisitions.
NVIDIA nonetheless faces robust competitors from AMD, in addition to Intel‘s new discrete GPU and AI chips from challengers like Graphcore, but it surely’s nonetheless a extra interesting funding than Qualcomm. Qualcomm stays a secure long-term funding, but it surely in all probability will not outperform NVIDIA till it diversifies its enterprise away from the smartphone market and its controversial licensing charges.
— to www.fool.com