On Thursday, Intel Corp. (
INTC, Financial) delivered earnings and revenue beats for its first quarter of fiscal 2022, which ended on April 2. Adjusted earnings were 87 cents per share versus the 81 cents expected by analysts, while revenue came in at $18.31 billion versus estimates for $18.31 billion.
Despite the good news for Intel’s investors, shares dropped 6% on Friday to trade around $43.87 thanks to a disappointing outlook as well as further delays in major milestones.
Supply chain issues are partially to blame for this, but Intel also has a history of failing to meet its goals on time. This has likely played a key role in its depressed earnings multiples; Intel has a price-earnings ratio of just 9.04, which is below 82% of industry peers, even though it is one of the world’s top designers of processors. Its three-year revenue per share growth rate of 8.6% and three-year Ebitda per share growth rate of 8% are both near their respective industry medians.
This means even though Intel’s shares are down 34% year over year, have a low price-earnings ratio and are modestly undervalued based on the GF Value chart, there are likely better value opportunities in the semiconductor sector.
In this discussion, we will take a look at three semiconductor names that are also undervalued based on GF Value, but which have revenue and Ebitda growth rates at least twice those of Intel: Advanced Micro Devices Inc. (
Advanced Micro Devices
Advanced Micro Devices (
AMD, Financial) is a semiconductor company headquartered in Santa Clara, California. It develops computer processors and related technologies and produces flash memories, graphics processors, motherboard chip sets and other components used in consumer electronics.
On April 29, shares of Advanced Micro Devices traded around $86.28 for a market cap of $140.46 billion and a price-earnings ratio of 33.46. The GF Value chart rates the stock as significantly undervalued:
The company has a three-year revenue per share growth rate of 30% and a three-year Ebitda per share growth rate of 79.9%.
Advanced Micro Devices has undergone a revival in recent years under CEO Lisa Su, who joined the company in 2012 and became its chief executive in 2014. In order to mitigate supply chain issues, the company is making strategic investments in long-term supply chain capacity, and it has a strong foundry partnership with Taiwan Semiconductor Manufacturing (TSM), the world’s leading chip producer.
Back in July of 2021, Su said she expected the company’s chip supply to be tight through the second half of the year, but that these issues should ease up by 2022. Like with Intel, a big ongoing concern is the pull-forward in demand for PCs during the pandemic.
Advanced Micro Devices remains on track to deliver next-generation products in 2022, including the Zen 4 processors and RDNA 3 GPUs. It also completed its acquisition of Xilinx in February, which adds high-quality and differentiated intellectual property as well as top talent to the company.
NVDA, Financial) is a Santa Clara, California-based technology company that designs graphics processing units and system on a chip units. It has a strong presence in the mobile computing and automotive markets and is a leader in artificial intelligence and internet of things (IoT) innovations.
On April 29, shares of Nvidia traded around $186.65 for a market cap of $543.67 billion and a price-earnings ratio of 48.51. The GF Value chart rates the stock as modestly undervalued:
The company has a three-year revenue per share growth rate of 31.3% and a three-year Ebitda per share growth rate of 38.5%.
In addition to the general tech sell-off, Nvidia is suffering from negative investor sentiment due to its failed attempt to acquire British semiconductor company Arm Ltd. from SoftBank Group (
The deal was riddled with too many antitrust issues to succeed, as Arm is one of Britain’s most prized tech companies and also licenses its designs to companies all over the world. An acquisition from U.S.-based Nvidia could have potentially resulted in national security concerns for Britain and gatekeep Arm’s designs.
Despite this high-profile setback, Nvidia is doing excellent on its own. It is known for consistently leading the GPU market, enabling more detailed computer graphics and video game worlds. It is also a leader in semiconductors for artificial intelligence and IoT, two markets that are expected to grow exponentially in coming years, though Advanced Micro Devices is beginning to challenge its dominance in some areas.
QCOM, Financial) is a multinational semiconductor company based in San Diego. Its main focus is on communications technology, particularly for use in smartphones, 5G and artificial intelligence. It is perhaps best known for its widely used cellular modems.
On April 29, shares of Qualcomm traded around $141.13 for a market cap of $157.65 billion and a price-earnings ratio of 16.11. The GF Value chart rates the stock as modestly undervalued:
The company has a three-year revenue per share growth rate of 23.6% and a three-year Ebitda per share growth rate of 79.8%.
Qualcomm is seeing increasing demand for its wireless and high-performance, low-power processor technologies. This company is a leading producer of application processors, integrated GPUs and baseband modems for mobile device. In addition, it profits from every smartphone sold worldwide due to its patents, even if said phone doesn’t use Qualcomm’s chips.
Qualcomm is navigating the semiconductor supply chain issues well, contributing to its growth despite the general industry headwinds. This is largely due to its shift to focus more on the higher-end Snapdragon SoCs, which have less exposure to materials that are in short supply. The company has also made efforts to diversify its supply chains, reducing the risk of complete bottlenecks.
A major risk factor for this stock is Qualcomm’s heavy reliance on smartphone sales. The smartphone market could cool off in the coming years as it exits the latest upgrade cycle, and high inflation could potentially hurt the next upgrade cycle as customers (especially those in emerging markets) tighten their belts.