In this piece, I have evaluated two chip stocks, Texas Instruments Incorporated (TXN) and Intel Corporation (INTC), to determine which holds greater potential for investors. Despite the industry’s strong footing, it could be wise to wait for a better entry point in these stocks ahead of their earnings.
But first, let’s take a quick look at the industry landscape.
The increasing use of digitally integrated ICs in the consumer electronics, automotive, and telecommunications industries is expected to drive the semiconductor sector’s growth. Also, the integration of Artificial Intelligence (AI), the Internet of Things (IoT), machine learning, and renewable energy systems creates new opportunities for chip providers.
According to a Custom Market Insights report, the global semiconductor market is expected to grow at a CAGR of 7.1%, with the market size resulting in $1.12 trillion by 2032.
Moreover, the Semiconductor Industry Association (SIA) announced that global semiconductor industry sales totaled $46.20 billion in February 2024, up 16.3% from $39.70 billion in February last year. According to SIA, global semiconductor sales are expected to increase 13.1% year-over-year to $588.40 billion in 2024.
Given this backdrop, let’s compare two Semiconductor & Wireless Chip stocks, Texas Instruments Incorporated (TXN) and Intel Corporation (INTC), to understand why it could be wise to hold these stocks for now.
The Case for Texas Instruments Incorporated Stock
Texas Instruments Incorporated (TXN) designs, manufactures, and sells semiconductors to electronics designers and manufacturers in the United States and internationally. The company operates through Analog and Embedded Processing segments. Its market cap currently stands at $145.32 billion.
TXN’s stock has declined 4.3% over the past month but gained 5.8% over the past six months to close the last trading session at $159.68.
In terms of forward EV/EBITDA, TXN is trading at 21.25x, 52.7% higher than the industry average of 13.92x. Also, the stock’s EV/Sales is trading at 9.53x, 254.3% higher than the industry average of 2.69x.
TXN’s trailing-12-month gross profit margin of 62.90% is 29% lower than the industry average of 48.77%. Moreover, its trailing-12-month EBIT margin and EBITDA margin of 41.75% and 48.46% compared to industry averages of 4.81% and 9.67%, respectively.
In the fourth quarter that ended December 31, 2023, TXN’s revenue and gross profit declined 12.6% and 21.4% year-over-year to $4.08 billion and $2.43 billion, respectively. Its net income and earnings per common share stood at $1.37 billion and $1.49, down 30.1% and 30% from the prior year’s quarter, respectively.
However, as of December 31, 2023, the company’s total current assets came at $15.12 billion, compared to $14.02 billion as of December 31, 2022.
TXN is scheduled to release its first-quarter financial results on Tuesday, April 23, 2024. Analysts expect TXN’s EPS for the fiscal year (ending December 2024) to decline 27.7% year-over-year to $5.08, and its revenue is expected to decrease 11% year-over-year to $15.59 billion. However, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
TXN’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
TXN has a C grade for Value, Momentum, Stability, and Sentiment. In the Semiconductor & Wireless Chip industry, it is ranked #47 out of 92 stocks.
To see additional POWR Ratings for Growth and Quality for TXN, click here.
The Case for Intel Corporation Stock
Intel Corporation (INTC) designs, develops, manufactures, markets, and sells computing and related products and services worldwide. It operates through Client Computing Group; Data Center and AI; Network and Edge; Mobileye; and Intel Foundry Services segments. Its market cap currently stands at $145.58 billion.
INTC’s stock has declined 18.7% over the past month to close the last trading session at $34.20. However, the stock has gained 9.8% over the past year.
On April 17, INTC announced that it had built the world's largest neuromorphic system. Code-named Hala Point, a large-scale neuromorphic system initially deployed at Sandia National Laboratories, utilizes Intel’s Loihi 2 processor, aims at supporting research for future brain-inspired AI, and tackles challenges related to the efficiency and sustainability of today’s AI.
On April 9, INTC introduced the Intel Gaudi 3 accelerator to bring performance, openness, and choice to enterprise generative AI (GenAI) and unveiled a suite of new open, scalable systems, next-gen products, and strategic collaborations to accelerate GenAI adoption.
In terms of forward EV/EBITDA, INTC is trading at 10.72x, 23% lower than the industry average of 13.92x. However, its forward EV/EBIT of 27.69x is 42.9% higher than the 19.38x industry average. The stock’s forward non-GAAP P/E of 25.26x is 10.8% higher than the industry average of 22.80x.
INTC’ trailing-12-month EBITDA margin and net income margin of 17.76% and 3.11% are 83.6% and 18.9% higher than the industry averages of 9.67% and 2.62%, respectively. However, the stock’s trailing-12-month asset turnover ratio of 0.29x is 52.5% lower than the industry average of 0.61x.
During the fourth quarter that ended December 31, 2023, INTC’s net revenue increased 9.8% year-over-year to $15.41 billion. Its gross margin stood at $7.05 billion, up 28.2% year-over-year. Its non-GAAP net income and non-GAAP EPS came in at $2.30 billion and $0.54, up 262.7% and 260% year-over-year, respectively.
However, as of December 31, 2023, its total current assets were $43.27 billion, compared to $50.41 billion as of December 31, 2022.
INTC is set to release its first-quarter financial results on Thursday, April 25, 2024. Analysts expect INTC’s revenue for the first quarter (ended March 2024) to increase 15.7% year-over-year to $12.78 billion. The company is expected to report an EPS of $0.14 for the same quarter, compared to a year-ago loss per share of $0.04.
However, INTC has an impressive earnings history, as it surpassed the consensus EPS estimates in all four trailing quarters.
INTC’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Quality, Sentiment, and Momentum. INTC is ranked #43 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see INTC’s ratings for Growth and Value here.
TXN vs. INTC Earnings Alert - Which Chip Stock Will Surge Ahead?
The semiconductor industry is expected to showcase continued resilience and growth thanks to the increasing chip demand across consumer electronics, industrial equipment, and automotive sectors. Also, the rising penetration of cutting-edge digital technologies such as AI, IoT, and machine learning is fostering the industry’s expansion.
Both TXN and INTC stand to capitalize on these burgeoning semiconductor industry trends. However, given their mixed fundamentals, waiting for a better entry point in these stocks could be wise now.
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.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TXN shares were trading at $160.24 per share on Monday morning, up $0.56 (+0.35%). Year-to-date, TXN has declined -5.25%, versus a 4.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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