In this article, I evaluated Intel Corporation (INTC) and Taiwan-based ASE Technology Holding Co., Ltd. (ASX) to determine the dominant chip stock. After thoroughly evaluating these stocks, I think ASX might be a superior choice for the reasons discussed in this article.
The market for consumer electronic products is growing, boosting the prospects of the semiconductor industry. Gadgets from smartphones to laptops, wearable devices to smart home appliances rely heavily on semiconductor components to function efficiently.
The memory chips used in these devices enable quick processing of vast amounts of data, making them even more valuable. Moreover, industrial applications are demanding faster and more sophisticated memory chips amid the increasing adoption of advanced technologies. Therefore, the semiconductor market is expected to reach $1.30 trillion by 2032 at a CAGR of 8%.
In addition, a key factor shaping the wireless chipset market growth is the integration of AI, which potentially improves capabilities, facilitating devices to execute sophisticated tasks and make intelligent decisions locally. The Wireless chipset market is estimated to grow at a CAGR of 4.4% until 2027.
INTC gained 78.9% over the past nine months compared to ASX’s 20.3% gain. The stock has also gained 54.3% over the past year compared to ASX’s 35.4% return.
However, here are the reasons why I think ASX might perform better in the near term:
Recent Developments
On November 27, 2023, INTC announced a new collaboration with Databricks to merge Intel Granulate’s autonomous, continuous optimization solutions with Databricks’ robust Data Intelligence Platform under the Databricks Partner Program.
Conversely, On October 3, 2023, ASX’s member Advanced Semiconductor Engineering, Inc., announced the launch of its Integrated Design EcosystemTM (IDE), a collaborative design toolset optimized to systematically boost advanced package architecture across its VIPackTM platform.
Recent Financial Results
For the third quarter ended October 31, 2023, INTC’s net revenue declined 7.7% year-over-year to $14.16 billion. However, non-GAAP operating income and non-GAAP net income attributable to INTC increased 16.3% and 14% year-over-year to $1.92 billion and $1.74 billion, respectively.
On the contrary, ASX’s total net revenues came in at NT$154.17 billion ($4.90 billion) in the fiscal third quarter that ended September 30, 2023. Net income attributable to ASX came in at NT$8.78 billion (279.34 million), up 13.4% from the year-ago quarter. Its EPS increased 13.6% year-over-year to NT$2.
Past And Expected Financial Performance
Over the past three years, INTC’s revenue declined at a 12.2% CAGR. Analysts expect INTC’s revenue to decline by 14.6% this year but increase 7.6% in the fourth quarter ending December 2023. Its EPS is expected to decline 48.2% in the current year but increase 348.5% over the fiscal fourth quarter (ending December 2023).
Conversely, ASX’s revenue has increased at a CAGR of 10.5% over the past three years. Its revenue is expected to increase 12.6% in the fiscal year ending December 2024 and 3.8% in the fiscal first quarter ending March 2024. Its EPS is expected to rise 48.7% in the fiscal year ending December 2024 and 50.1% in the fiscal first quarter ending March 2024.
Valuation
INTC’s forward EV/EBITDA multiple of 18.14 is higher than DSGX’s 7.10. INTC’s forward EV/Sales multiple of 3.95x is higher than ASX’s 1.20x.
Thus, ASX is more affordable.
Profitability
INTC’s trailing-12-month EBIT margin of negative 3.94% is lower than ASX’s 8.27%. In addition, INTC’s trailing-12-month EBITDA margin of 15.69% is lower than ASX’s 17.47%.
Thus, ASX is more profitable.
POWR Ratings
INTC has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, ASX has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. INTC has a C grade for Value. Its forward EV/EBITDA of 18.45x is 27.1% higher than the industry average of 14.52x.
Among the 92 stocks in the in the Semiconductor & Wireless Chip industry, INTC is ranked #41, while ASX is ranked #12.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Growth, Quality, and Sentiment. Get all INTC ratings here. Click here to view ASX ratings.
The Winner
The global chip industry is seeing growth as enterprises increasingly rely on memory chips for data storage and other tech advancements. Industry players such as INTC and ASX are well-positioned to benefit from these industry tailwinds.
ASX’s higher profitability and lower valuation multiples makes 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 here.
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ASX shares were trading at $8.62 per share on Thursday afternoon, down $0.03 (-0.35%). Year-to-date, ASX has gained 44.70%, versus a 19.92% 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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