The semiconductor industry witnessed significant logistic disruptions in 2022. Moreover, the industry has been under pressure with declining demand. However, Barclays Capital Inc. analysts don't expect the sector to revisit multi-year lows reached three months ago.
While the industry has been struggling with macro headwinds, its long-term prospects look impressive. Amid the metaverse's surging popularity, semiconductor and chip producers are slated to be the biggest gainers. According to an Accenture report, 67% of executives believe semiconductors are the most critical technology for the metaverse industry.
Furthermore, the global artificial intelligence chip market is projected to grow at a CAGR of 37.1% until 2031. So, NVIDIA Corporation (NVDA) and Xperi Inc. (XPER) are expected to gain substantially in the near future. NVDA and XPER are popular chip makers operating globally.
NVDA has gained 41.9% over the past month, while XPER has gained 16%. In addition, NVDA has gained 49% over the past three months, while XPER has lost 8.4%.
Which stock is a buy? Let's find out.
Latest Developments
On January 3, 2023, NVDA and Hon Hai Technology Group (Foxconn), the world's largest technology manufacturer, announced a strategic partnership to develop automated and autonomous vehicle platforms. This partnership is expected to be a new chapter in innovative electric vehicle development.
On the other hand, on January 5, 2023, XPER announced its partnership with LG Electronics to integrate DTS: X® immersive audio technology into LG's latest OLED and Premium LCD TVs.
Jea Yoo, president of Korea at XPER, said, "DTS is enabling a new level of audio experience, bringing the quality sound consumers expect in a theater to the home. We're excited to help transform the listening experience of LG TV users."
Recent Financial Results
NVDA's revenue came in at $5.93 billion for the third quarter that ended October 30, 2022, down 16.5% year-over-year. Its gross profit came in at $3.18 billion, down 31.4% year-over-year. Also, its net income came in at $680 million, down 72.4% year-over-year, while its EPS came in at $0.27, down 72.2% year-over-year.
On the other hand, XPER's revenue came in at $121.64 million for the third quarter that ended September 30, 2022, up 3.3% year-over-year. Its cash and cash equivalents came in at $180.12 million for the period that ended September 30, 2022, compared to $120.69 million for the period that ended December 31, 2021.
Past and Expected Financial Performance
NVDA's revenue is expected to decline 21.4% year-over-year to $6.01 billion for the yet-to-be-reported quarter ending January 2023. However, its revenue is expected to increase 8.8% year-over-year to $29.29 billion in 2024. Its EPS is estimated to decrease 26.6% year-over-year to $3.26 for 2023 and increase 31.6% year-over-year to $4.29 in 2024.
On the other hand, XPER's revenue is expected to increase 6.3% year-over-year to $529.21 million in 2023. Its EPS is expected to increase 89.6% year-over-year for the same period. Moreover, its EPS is expected to rise 15% per annum for the next five years.
Profitability
NVDA's EBITDA and net income margin of 30.52% and 20.85% are higher than XPER's negative 8.47% and 104.22%. Also, its ROE of 26.39% compares with XPER's negative 17.09%. However, XPER's 74.91% gross profit margin is higher than NVDA's 57.84%.
Valuation
In terms of forward EV/Sales, XPER's 0.70x is lower than NVDA's 19.23x. Its trailing-12-month Price/Sales of 0.88x is 95.2% lower than NVDA's 18.45x. Moreover, XPER's trailing-12-month Price to Book ratio of 0.58x compares with NVDA's 24.39x.
Thus, XPER is relatively more affordable.
POWR Ratings
XPER has an overall rating of A, equating to Strong Buy in our proprietary POWR Ratings system. On the other hand, NVDA has an overall rating of D, which translates to Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
XPER has a B grade for Growth, consistent with its steady financials in the latest reported quarter. On the other hand, NVDA has a D grade for Growth, consistent with its bleak financials in the latest reported quarter.
In addition, XPER has a B grade for Sentiment, in sync with favorable analyst expectations. On the other hand, NVDA has a C grade for Sentiment, in sync with mixed analyst expectations.
Of the 92-stock Semiconductor & Wireless Chip industry, XPER is ranked #3, while NVDA is ranked #80.
Beyond what we've stated above, we have also rated the stocks for Growth, Value, Momentum, and Sentiment. Click here to view XPER's Ratings. Get all NVDA ratings here.
The Winner
Semiconductor demand is poised to grow due to its varied usage across emerging industries like the metaverse and AI. Therefore, quality stocks XPER and NVDA should benefit. However, XPER's higher growth and attractive valuations make it the better buy here.
Our research shows that the 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.
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NVDA shares rose $3.38 (+1.60%) in premarket trading Tuesday. Year-to-date, NVDA has gained 44.31%, versus a 7.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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