Santa Clara, Calif.-based NVIDIA Corporation (NVDA) is a visual computing company worldwide. It operates in two segments: Graphics and Compute & Networking. In comparison , QUALCOMM Incorporated (QCOM) in San Diego, Calif., develops and commercializes foundational technologies and products used in mobile devices and other wireless products. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).

The semiconductor shortage is now a global concern, creating production bottlenecks in several industries. However, with  federal investments and initiatives by the industry giants, the industry is expected to rebound soon. According to an  International Data Corporation (IDC)’s report, dedicated semiconductor foundries have been selected  for the rest of the year, with capacity utilization at nearly 100%, which should boost production. In addition, 5G semiconductor revenues are expected to increase by 128% year-over-year, while total mobile phone semiconductors are expected to grow by 28.5%. Both NVDA and QCOM are well-known names in the industry and are expected to gain substantially from the industry’s growth.

NVDA’s shares have gained 74.7% in price over the past six months, while QCOM has returned 5.3% over this period. Also, NVDA’s 69.1% gains year-to-date compare with QCOM’s 12.1% decline/. In terms of their past year’s performance, NVDA is the winner with 78.8% gains versus QCOM’s 19.3%.

Click here to checkout our Semiconductor Industry Report for 2021

But which stock is a better buy now? Let’s find out.

Latest Developments

On August 25, NVDA announced that the largest GPU-based supercomputer at the U.S. Department of Energy’s Argonne National Laboratory would run on NVIDIA’s accelerated computing platform. This reflects the company’s technological prowess and its strong position in the industry.

On August 5, QCOM made an  offer to acquire Veoneer Inc. (VNE) for $37 per share in an all-cash transaction. This proposal is aligned with the company’s diversification strategy. “The proposed acquisition will bring together our industry-leading automotive solutions with Veoneer's assisted driving assets to deliver a competitive and open ADAS platform to automakers and Tier 1 suppliers at scale," said Cristiano Amon, president and CEO of QCOM.

Recent Financial Results

NVDA’s revenues have increased 68% year-over-year to a record $6.51 billion in its  fiscal second quarter ended August 1. Its operating income stood at $2.44 billion, up 275% from the same period last year. Its non-GAAP net income grew 92% from its  year-ago value to $2.62 billion. The company’s non-GAAP EPS increased 89% year-over-year to $1.04.

For its fiscal third quarter ended June 27, QCOM’s revenues increased 65% year-over-year to $8.06 billion. Its earnings before taxes (EBT) grew 160% from its year-ago value to $2.26 billion, while its non-GAAP net income improved 124% year-over-year to $2.20 billion. The company’s EPS improved 123% year-over-year to $1.92.

Past and Expected Financial Performance

NVDA’s revenues and EBITDA have grown at CAGRs of 22.6% and 22.3%, respectively, over the past three years. Analysts expect NVDA’s revenue to increase 44.3% in the current quarter, 54.5% in the current year, and 13% in the next year. The company’s EPS is expected to grow 50.7% in the current quarter, 65.2% in the current year, and 12.3% in the next year. Furthermore,  its EPS is expected to grow 32.6% per annum over the next five years.

In comparison,  QCOM’s revenues and EBITDA grew at CAGRs of 12.7% and 21.1%, respectively, over the past three years. Analysts expect the company’s revenue to increase 36.3% in the current quarter, 52.5% in the current year, and 10.3% in the next year. The company’s EPS is expected to grow 55.9% in the current quarter, 97.1% in the current year, and 11.7% in the next year. Moreover, QCOM’s EPS is expected to grow 32.2% per annum over the next five years.

Profitability

QCOM is more profitable with a 23.32% levered FCF margin, versus NVDA’s 21.16%. Also, QCOM’s trailing-12-month revenue is 1.49 times what NVDA generates.

Furthermore, QCOM’s ROE, ROA, and ROTC of 160.32%, 18.17%, and 29.54%, respectively,  compare with NVDA’s 40.38%, 14.36%, and 16.50%.

Thus, QCOM is more profitable here.

Valuation

In terms of forward EV/Sales, NVDA is currently trading at 21.13x, which is 77.9% higher than QCOM, which is currently trading at 4.66x. Also, 51.36 NVDA’s forward EV/EBITDA ratio  is 76.7% higher than QCOM’s 11.96.

Thus, QCOM is a relatively affordable stock here.

POWR Ratings

QCOM has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast,  NVDA has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Both the stocks have a B Sentiment grade, consistent with their impressive revenue and EPS growth estimates.

QCOM has a grade of B for Value, which is justified as its 16.23 non-GAAP forward P/E ratio is 35.1% lower than the 25.05 industry average. On the other hand, NVDA has a D grade for Value. Its 54.66 non-GAAP forward P/E ratio is 118.5% higher than the industry average.

Of the 97 stocks in the B-rated Semiconductor & Wireless Chip industry, QCOM is ranked #13, while NVDA is ranked #61.

Beyond what we’ve stated above, we have also rated the stocks for Stability, Momentum, Quality, and Growth. Click here to view QCOM ratings. Also, get all NVDA ratings here.

The Winner

Front-end semiconductor production is expected to meet demand in the coming quarters, driven by substantial investments in the industry. QCOM and NVDA are well-positioned to benefit from the industry tailwinds. However, its higher profitability and relatively lower valuation make QCOM the better choice here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.

Click here to checkout our Semiconductor Industry Report for 2021

NVDA shares were trading at $214.36 per share on Monday morning, down $6.45 (-2.92%). Year-to-date, NVDA has gained 64.29%, versus a 19.71% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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