The global semiconductor chip shortage has been affecting several industries since the onset of the COVID-19 by constraining supply chains. Besides, Russia’s invasion of Ukraine could worsen the supply chain even further. It is also important to note that the chip shortage has led to a rise in chip prices, resulting in higher revenue figures for chip-makers.
Furthermore, according to the Fortune Business Insights report, the global semiconductor market is estimated to grow at a CAGR of 9.2% between 2021 and 2029, hitting $893.1 billion in the final year. The industry should grow in the long-term thanks to the broader usage of chips in Artificial Intelligence (AI), the Internet of Things (IoT), machine learning technologies, and higher consumption of consumer electronic devices.
With this in mind, today, I am going to analyze and compare two semiconductor stocks, Advanced Micro Devices, Inc. (AMD) and Marvell Technology, Inc. (MRVL), to determine which is currently a better investment.
Founded in 1969, AMD is a global semiconductor company that offers a broad range of products, including x86 microprocessors, chipsets, discrete and integrated graphics processing units (GPUs), data center & professional GPUs, and others. AMD operates through two key segments: Computing and Graphics & Enterprise, Embedded and Semi-Custom. Based in Wilmington, Delaware, Marvell Technology is a semiconductor company that offers a wide range of Ethernet solutions, including controllers, network adapters, physical transceivers, and others. It also provides a range of storage products.
Year-to-Date (YTD) shares of AMD are down 31.8%, while MRVL stock lost about 31.9% over the same period.
Click here to checkout our Semiconductor Industry Report for 2022
Recent Developments
On May 17th, Piper Sandler analyst Harsh Kumar upgraded Advanced Micro Devices to “Overweight” from “Neutral.” The analyst noted that the recent share weakness creates attractive investment opportunities, especially considering AMD's strong server trends, strong semi-custom trends, and commercial PC growth offsetting consumer PC exposure. The firm also boosted a price target from $98 to $140 on the AMD stock, which implies over a 40% upside.
Recent Quarterly Performance & Analysts Estimates
On May 3rd, Advanced Micro Devices declared an earnings report for the first fiscal quarter of 2022. The company’s revenue grew 71.2% year-over-year to $5.9 billion, driven by record revenue in the Computing & Graphics and Enterprise, Embedded, and Semi-Custom segments; and the inclusion of Xilinx revenue. Notably, Computing & Graphics segment revenue was up 33% YoY to $2.8 billion, while revenue in Enterprise, Embedded, and Semi-Custom segment advanced 88% YoY to $2.5 billion. Not surprisingly, AMD surpassed the Wall Street revenue consensus by $330 million.
It is also worth mentioning that AMD's Non-GAAP gross margin was improved by 660 bps percentage points YoY to 53% amid a higher server processor revenue and high margin Xilinx revenue. Its Non-GAAP net income stood 148% higher YoY at $1.6 billion. As a result, AMD's Non-GAAP EPS has been reported at $1.13, beating estimates by $0.20.
For the second quarter, analysts expect AMD's EPS to be $1.03, representing a 63.72% year-over-year growth. Moreover, the company's revenue should advance 69.44% YoY to $6.52 billion in FQ2.
Marvell Technology's top line for its fiscal first quarter of 2023 rose 74.2% year-over-year to $1.45 billion, beating Wall Street revenue estimates by $20 million. The increase in revenue was mainly driven by a 131% YoY increase in data center revenues to $640.5 million and 64% YoY growth in the enterprise networking segment to $286.6 million. Additionally, the company revealed a Non-GAAP EPS of $0.52, topping analysts' consensus by $0.01.
It is important to note that MRVL's GAAP gross margin advanced to 51.9% in FQ1, up from 50.2% in a year-ago quarter. Also, its Non-GAAP gross margin came in at 65.5%, compared to 64.3% a year ago.
Currently, Wall Street expects MRVL's earnings to stand 62.57% higher YoY at $0.55 a share in the second fiscal quarter of 2023. Moreover, analysts anticipate its FQ2 revenue to grow 38.47% YoY to $1.49 billion.
Bullish Options Bets Placed On AMD Stock
The options, which expire on June 17th, 2021, saw increased call buying on Thursday. The open interest for the $92.00 calls rose by 5,568 contracts to a total of 5,848 open contracts (source: barchart.com). A buyer of those calls would need the stock to rise to $102.1 by the expiration date, a gain of about 3.3% from AMD stock’s current price.
The Bottom Line
In my opinion, AMD is a better investment than MRVL at these levels. I believe AMD is poised to better capitalize on the industry’s growth, taking into account its relatively better financials and higher forward growth rates. Finally, recent options trades suggest a positive market sentiment for AMD stock.
AMD shares were trading at $100.51 per share on Friday morning, up $1.76 (+1.78%). Year-to-date, AMD has declined -30.15%, versus a -13.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
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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