Monolithic Power Systems vs. NXP Semiconductors: Which Chip Stock is a Better Buy?

Headquartered in Eindhoven, Netherlands, NXP Semiconductors N.V.'s (NXPI) product portfolio includes microcontrollers, communication processors, analog and interface devices, radio frequency power amplifiers, and security controllers. In comparison, Monolithic Power Systems, Inc. (MPWR) in San Jose, Calif., designs, develops, and markets integrated power semiconductor solutions and power delivery architectures for the computing and storage, automotive, industrial, communications, and consumer applications markets.

According to the U.S.-based Semiconductor Industry Association, global semiconductor industry sales reached a record $555.90 billion in 2021, up 26.2% year-over-year as companies ramped up production to meet high demand amid a worldwide chip shortage. In addition, the European Commission recently announced a new European Chips Act that will allow 15 billion euros ($17.11 billion) in additional public and private investments until 2030, which is also expected to be a boon for the industry. Furthermore, the demand for semiconductors is expected to continue rising as chips become even more heavily embedded in day-to-day technologies. According to the market research group IC Insights, global semiconductor sales are expected to grow at a 7.1% CAGR through 2026. As a result, both NXPI and MPWR should benefit.

MPWR’ shares have gained 12.3% in price over the past year, while NXPI has negative returns. Also, MPWR’s 36.9% gains over the past nine months compare with NXPI’s negative returns.

Click here to checkout our Semiconductor Industry Report for 2022

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On Jan. 4, 2022, NXPI announced it was ramping up production of its flagship 4D imaging radar chip and that it had added a new product tailored for the fast-growing L2+ market. Torsten Lehmann, EVP and GM, Radio Frequency Processing, NXP, said, “The extended S32R family line-up harnesses our leadership in radar processing, super-resolution algorithms and advanced MIMO waveforms to deliver the benefits of imaging radar to the rapidly growing L2+ vehicle segment.”

On Feb. 10, 2022, Michael Hsing, CEO and founder of MPWR, said, “Looking ahead, MPS is on track to expand capacity in 2022 well beyond $2 billion, allowing the company to successfully ramp new product revenue and achieve strategic market share gains in 2023, 2024 and beyond.”

Recent Financial Results

For its fiscal fourth quarter, ended Dec. 31, 2021, NXPI’s revenue came in at $3.04 billion, representing a 21.2% year-over-year increase. Its non-GAAP operating income increased 39% year-over-year to $1.06 billion. Its adjusted net income grew 43.3% year-over-year to $1.12 billion. Also, the company’s EPS was  $2.24, up 107.4% year-over-year.

MPWR’s revenue increased 44.4% year-over-year to $336.50 million for its fiscal fourth quarter, ended Dec.31, 2021. The company’s non-GAAP operating income grew 68.9% year-over-year to $112 million. Its non-GAAP net income increased 63.4% year-over-year to $102.10 million. And its non-GAAP EPS came in at $2.12, up 61.8% year-over-year.

Past and Expected Financial Performance

NXPI’s revenue and EBIT have grown at CAGRs of 5.6% and 54.8%, respectively, over the past three years. Analysts expect NXPI’s revenue to increase 21.5% for the quarter ending March 31, 2022, and 15.1% in its fiscal 2022. The company’s EPS is expected to grow 36.8% for the quarter ending March 31, 2022, and 19.7% in fiscal 2022. And  its EPS is expected to grow at a 16.8% rate per annum over the next five years.

In comparison, MPWR’s revenue and EBIT have grown at CAGRs of 27.5% and 33.3%, respectively, over the past three years. The company’s revenue is expected to increase 45.5% for the quarter ending March 31, 2022, and 26.2% in its fiscal 2022. Its EPS is expected to grow 49.3% for the quarter ending March 31, 2022, and 29.1% in fiscal 2022. And MPWR’s EPS is expected to grow at a 25% rate per annum over the next five years.

Profitability

NXPI’s trailing-12-month revenue is 9.14 times what MPWR generates. NXPI is also more profitable, with an EBITDA margin and levered FCF margin of 35.06% and 20.23%, respectively,  compared to MPWR’s 24.87% and 19.05%.

Furthermore, NXPI’s 23.94% ROE compares favorably with MPWR’s 21.90%.

Valuation

In terms of its forward non-GAAP P/E ratio, MPWR is currently trading at 43.82x, which is 203.5% higher than NXPI’s 14.44x. Furthermore, MPWR’s 35.42x forward EV/EBITDA is 210.2% higher than NXPI’s 11.42x.

So, NXPI is the more affordable stock.

POWR Ratings

NXPI has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In comparison, MPWR 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.

NXPI has a B grade for Value, which is consistent with its 0.77x forward non-GAAP PEG, which is 49.8% lower than the 1.53x industry average. However, MPWR has a D grade for Value, which is in sync with its 1.77x forward non-GAAP PEG. which is 15.6% higher than the1.53x  industry average.

Of the 98 stocks in the A-rated Semiconductor & Wireless Chip industry, NXPI is ranked #19, while MPWR is ranked #49.

Beyond what I have stated above, we have also rated both the stocks for Growth, Sentiment, Stability, Momentum, and Quality. Click here to view all the NXPI ratings. Also, get all the MPWR ratings here.

The Winner

The rising demand for semiconductor chips from the automotive and consumer electronics industries should keep driving the semiconductor industry’s growth. And even though both NXPI and MPWR are expected to benefit in the long run, we think it is better to bet on NXPI now because of its lower valuation and higher profitability.

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 2022

NXPI shares were trading at $195.13 per share on Tuesday afternoon, up $9.25 (+4.98%). Year-to-date, NXPI has declined -14.33%, versus a -6.28% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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