NVIDIA vs. ASML: Which Mega-Cap Semiconductor Stock is a Better buy?

Although the ongoing supply chain disruptions continue to affect global chip production, the semiconductor industry is expected to grow at a CAGR of 8.6% between 2021 and 2028, reaching $803.15 billion in the final year. The industry's growth will be driven by wider usage of chips in Artificial Intelligence (AI), the Internet of Things (IoT), machine learning technologies, and higher consumption of consumer electronic devices. 

Despite the shortage, the global semiconductor sales increased 23.5% YoY in November, reflecting an 8.71% gain in the iShares PHLX SOX Semiconductor Sector Index ETF (SOXX) over the past six months, compared to SPDR S&P 500 Trust ETF (SPY) 3.49% gains over the same period. 

With this in mind, I will analyze and compare two mega-cap semiconductor stocks: NVIDIA Corporation (NVDA) and ASML Holding N.V. (ASML), to determine which one currently presents a better buying opportunity. 

Based in Santa Clara, California, NVIDIA is one of the biggest semiconductor companies in the world. NVIDIA is best known for its graphics processing units (GPUs). The company is also diversifying its revenue streams by entering the car software, streaming, and cloud gaming markets. Founded in 1984, ASML Holding is a global semiconductor company that develops, manufactures, and sells advanced semiconductor equipment systems, which include lithography, metrology, and inspection-related systems for memory and logic chipmakers.

Over the past six months, NVDA stock advanced 34%, while ASML stock dropped about 14%.

Recent Developments

On February 8th, NVIDIA’s planned acquisition of Arm from SoftBank collapsed amid "significant regulatory challenges." In December, the U.S. Federal Trade Commission applied to the court, aiming to block the transaction on the antitrust background. It is also important to note that Nvidia's initial $1.25 billion deposit to Arm is non-refundable and will be recognized as a profit in 4Q2022. 

On January 19th, Intel and ASML prolonged their previously established collaboration to drive High-NA into manufacturing in 2025. Under the terms of the deal, Intel should buy an extreme ultraviolet high-production system, known as TWINSCAN EXE:5200. ASML President Martin van den Brink said, "Compared to the current EUV systems, our innovative extended EUV roadmap delivers continued lithographic improvements at reduced complexity, cost, cycle time, and energy that the chip industry needs to drive affordable scaling well into the next decade." Consequently, both companies should benefit from this partnership. 

Financial Overview & Analysts Estimates 

For its fiscal third quarter of 2022 ended October 31st, 2021, NVIDIA Corporation's total revenue lifted 50.1% year-over-year to $7.1 billion, beating the Wall Street consensus revenue estimates by $290 million. It is worth mentioning that the company delivered record data center revenue growth of 55% year-over-year to $2.94 billion as well as record gaming revenue of $3.22 billion, representing a 42% YoY increase. Besides, the GPU maker reported Non-GAAP EPS of $1.17, topping Wall Street’s estimates by $0.09.

For the fourth quarter, the analysts expect NVDA's EPS to come in at $1.22, up 57.61% from a year earlier. Additionally, Wall Street expects the company's revenue to increase by 48.43% year-over-year to $7.43 billion in the fourth fiscal quarter of 2022.

ASML's overall revenue for its fiscal fourth quarter of 2021 decreased 5% year-over-year to EUR 4.98 billion, missing Wall Street estimates by EUR 130 million. Also, the company's net bookings totaled EUR 7.1 billion in Q4, up 15% compared to the previous quarter. Additionally, the company disclosed a GAAP EPS of EUR 4.27, beating analysts' consensus by EUR 0.50.

Furthermore, ASML plans to pay a total dividend for 2021 of EUR 5.50 per ordinary share, which is a 100% increase compared to the previous year. In Q4, the company also repurchased about EUR 2.5 billion of its shares under the existing buyback program.

Analysts reached a consensus estimate of $1.91 EPS for the first quarter, implying a 50.27% YoY decrease. Additionally, an $4.27 billion average revenue estimate for the first quarter of 2022 shows an 18.67% decline year-over-year. 

Comparing Valuation, Growth & Profitability

In terms of Forward P/E, NVDA is currently trading at 61.61x, which is substantially higher than ASML, whose multiple is currently 35.41x. When it comes to the FWD EV/EBITDA multiple, NVDA's EV/EBITDA multiple of 56.30x is 101% higher than ASML's 28.06x. 

On the other hand, NVDA is projected to demonstrate impressive forward revenue and EBITDA growth of 42.42% and 59.29%, respectively. These numbers exceed the ASML figures by 126% and 121%, respectively.

Finally, NVIDIA has a better margin profile with 64.40% gross profit, 40.20% EBITDA, and 33.81% net income margins. These figures outperform ASML's numbers of 52.71% gross profit, 37.65% EBITDA, and 31.61% net income margins.  

Conclusion

While NVIDIA and ASML Holding should benefit from the semiconductor industry’s growth over the long term, I believe NVIDIA is currently a better investment based on its superior financials, higher forward growth rates, and better margins profile. 

NVDA shares fell $6.45 (-2.42%) in premarket trading Thursday. Year-to-date, NVDA has declined -11.26%, versus a -4.51% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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