Advanced Micro Devices, Inc. (AMD) in Santa Clara, Calif., and NXP Semiconductors N.V. (NXPI) in Eindhoven, Netherlands, are two popular players in the semiconductor industry. AMD offers microprocessors, chipsets, GPUs, server and embedded processors, semi-custom System-on-Chip (SoC) products, and technology for game consoles, and provides assembling, testing, and packaging services worldwide. In comparison, NXPI designs semiconductors and software for mobile communications, consumer electronics, security applications, in-car entertainment, and networking.

The rising demand for semiconductor chips from various industries, primarily automotive and consumer electronics, amid a global supply crunch is pushing up chip prices. The global semiconductor industry has witnessed 29% year-over-year sales growth in July 2021.

Increasing government and corporate investments to address the chip shortage, and rising demand for chips due to the fast-paced digital transformation of industries, should keep driving the industry’s growth. The global semiconductor market is expected to grow 25.1% to $551 billion in 2021. So, both AMD and NXP should benefit.

While AMD’s shares have declined by  2.4% in price over the past month, NXPI has surged 1.2%. NXPI is a clear winner with 34.1% price gains versus AMD’s 19.1% returns in terms of their past nine months' performance. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Semiconductor Industry Report for 2021

Latest Developments

On August 30, 2021, the U.S. Department of Energy’s (DOE) Argonne National Laboratory chose AMD’s AMD EPYC processors to power a new Polaris supercomputer, which will prepare researchers for a forthcoming exascale supercomputer called Aurora at Argonne. Built by Hewlett Packard Enterprise (HPE), the AMD EPYC processors in these supercomputers should  allow scientists and developers to test and optimize software codes and applications to tackle a range of AI, engineering, and scientific projects, as we draw closer to the exascale era.

On July 20, 2021, NXPI and MOTER Technologies, Inc., a software and data science company focused on edge computing, data science, and insurance risk analytics in the automotive industry, introduced a secure data exchange platform that links deep data from connected vehicles to the insurance industry to power data science solutions for risk assessment and cost modeling. Combining NXPI’s S32G2 vehicle network processors with MOTER data analytics software, the platform offers a new type of vehicle edge computing with the ability to access vehicle-wide data to help monetize vehicle data for new and improved automotive insurance services.

Recent Financial Results

For the fiscal second quarter, ended June 26, 2021, AMD’s revenue increased 99.3% year-over-year to $3.85 billion. The company’s non-GAAP gross profit was  $1.83 billion, representing a 115.5% year-over-year improvement. Its non-GAAP operating income came in at $924 million for the quarter, up 296.6% from the prior-year period. While its non-GAAP net income increased 260.2% year-over-year to $778 million, its non-GAAP EPS increased 250% to $0.63. As of June 26, 2021, the company had $2.62 billion in cash and cash equivalents.

For its fiscal second quarter, ended July 4, 2021, NXPI’s total revenue increased 42.9% year-over-year to $2.60 billion. The company’s non-GAAP gross profit came in at $1.46 billion, up 63.2% from the prior-year period. Its non-GAAP operating income was $830 million, representing a 120.7% rise from the prior-year period. NXPI’s adjusted net income came in at $876 million, up 120.7% from the year-ago period. Its EPS was  $1.42, compared to a $0.77 loss per share  in the prior-year period. The company had $2.91 million in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

AMD’s revenue and EBITDA have grown at  28.2% and 74% CAGRs, respectively, over the past three years. The company’s EPS has grown at a 126.4% CAGR  over the past three years.

Analysts expect AMD’s EPS to increase 61.4% year-over-year in the current quarter, ending September 30, 2021, 93.8% in the current year, and 22.6% next year. Its revenue is expected to grow 46.5% year-over-year in the current quarter, 60.1% in the current year, and 15.9% next year. The stock’s EPS is expected to grow at a 32.4% rate over the next five years.

In comparison, over the past three years, NXPI’s revenue and EBITDA grew at CAGRs of 1.9% and 5%, respectively. The company’s EPS has grown at a 9.1% CAGR  over the past three years.

NXPI’s EPS is expected to grow 68.8% year-over-year in the current quarter, ending September 30, 2021, 67.9% in the current year, and 11.4% next year. Its revenue is expected to grow 25.8% year-over-year in the current quarter, 26.8% in the current year, and 7.1% next year. Analysts expect the stock’s EPS to increase at an 18.4% CAGR over the next five years.

Profitability

AMD’s trailing-12-month revenue is almost 1.3 times  NXPI’s. However, NXPI is more profitable, with a 52.2% gross profit margin versus AMD’s 45.7%.

Also, NXPI’s 31.6% and 23.9%  respective EBITDA  and levered free cash flow margins compare favorably with AMD’s 21.8% and 14.2%.

Valuation

In terms of non-GAAP forward PEG, AMD is currently trading at 1.46x, which is 97.3% higher than NXPI’s 0.74x.

And, in terms of forward EV/Sales, AMD’s 8.33x is 43.6% higher than NXPI’s 5.80x.

POWR Ratings

While AMD has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, NXPI has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

NXPI has an A grade for Growth, which is consistent with its impressive year-over-year earnings growth. NXPI’s EBIT has increased 584.4% from the prior-year period. However, AMD’s B grade for Growth is in sync with its relatively lower 187% EBIT growth  over the past year.

In terms of Quality, NXPI has been graded a B, which is consistent with its higher-than-industry profitability ratios. NXPI has a 52.2% trailing-12-month gross profit margin, which is 6.4% higher than the 49% industry average. However, AMD’s C grade for Quality is in sync with its relatively lower profitability ratios. The company has a 45.7% gross profit margin, which is 6.8% lower than the 49% industry average.

Of the 99 stocks in the B-rated Semiconductor & Wireless Chip industry, AMD is ranked #72, while NXPI is ranked #17.

Beyond what we’ve stated above, our POWR Ratings system has also rated AMD and NXPI for Value, Stability, Sentiment, and Momentum. Get all NXPI ratings here. Also, click here to see the additional POWR Ratings for AMD.

The Winner

Amid ongoing digitalization in many industries, the sustained demand for semiconductor chips and rising government and private investments to address the chip shortage make the semiconductor industry’s prospects bright. AMD and NXPI are well-positioned to capitalize on the industry tailwinds. However, we think its higher profitability and lower valuation make NXPI a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2021

AMD shares were trading at $109.32 per share on Tuesday morning, down $0.60 (-0.55%). Year-to-date, AMD has gained 19.20%, versus a 21.44% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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