Elevated demand for electronics, technological progress, and substantial government investments have positioned the semiconductor industry for robust growth in the current year and beyond. In this piece, I compared two chip stocks, Infineon Technologies AG (IFNNY) and Intel Corporation (INTC), to determine which could generate better returns.
Before I compare the fundamentals of these stocks, let’s see what’s happening in the semiconductor industry.
The extensive incorporation of chips into various end-use domains such as electronics, industrial machinery, automotive, networking, communications, and data processing is a crucial factor propelling the expansion of the global chip market.
Numerous applications, spanning AI, AR/VR, Internet of Things (IoT), autonomous vehicles, electric vehicles, aerospace, satellite communications, 5G/6G, smart cities, health tech, and beyond, all relying on the progress in semiconductor technologies, is thereby providing additional impetus to the sector's expansion.
The global semiconductor chip market is expected to grow at a CAGR of 7.1% to reach $1.12 trillion by 2032, per Custom Market Insights' report.
Moreover, in recent months, the United States has imposed stringent restrictions on chip sales to Chinese companies. In parallel, it has spurred domestic chip production with substantial federal subsidies to strengthen supply chain sovereignty and fortify the domestic semiconductor sector.
In this regard, the CHIPS and Science Act earmarks a significant $52.70 billion to enhance American semiconductor research and development, manufacturing, and workforce education.
This allocation encompasses $39 billion for manufacturing incentives, $13.20 billion for research, development, and training, and an additional $500 million dedicated to international ICT security and semiconductor supply chain initiatives.
In just one year since the Act's enactment, companies have announced investments surpassing $166 billion in semiconductor and electronics manufacturing. Since the start of the Biden-Harris administration, these commitments have surged, with companies committing over $231 billion to semiconductor and electronics investments in the nation.
IFNNY and INTC are expected to benefit from the industry’s tailwinds.
In terms of price performance, IFNNY has declined 7.5% over the past month compared to INTC’s 8.5% gain. Moreover, IFNNY has plummeted 13.5% over the past three months, compared to INTC’s 19.5% rise during the same period.
However, IFNNY has surged 39.6% over the past year to close the last trading session at $34.32, while INTC has gained 23.6% during the same time frame to close the last trading session at $38.01.
But which Semiconductor & Wireless Chip stock could be a better pick? Let’s find out.
Recent Developments
On August 16, IFNNY and Chicony Power Technology, a leading power supply manufacturer and electronics expert, announced an expanded partnership to boost the performance of IFNNY's latest PD3.1 notebook adapter series by harnessing gallium nitride (GaN) technology.
The synergy would allow IFNNY to offer innovative power design capabilities for PD3.1 adapters, promoting high-performance computing efficiency and mobility while contributing to environmental sustainability and financial growth.
On the same day, INTC announced the mutual decision with Tower Semiconductor (TSEM) to terminate their previously disclosed acquisition agreement. The termination stemmed from the challenges faced in promptly obtaining the necessary regulatory approvals, as specified in the merger agreement dated February 15, 2022.
As part of this termination arrangement, INTC will pay TSEM a termination fee of $353 million under the terms outlined in the merger agreement. This could potentially disrupt INTC's strategic plans and expansion efforts.
Recent Financial Results
For the third quarter that ended June 30, 2023, IFNNY’s revenue increased 13% year-over-year to €4.09 billion ($4.37 billion). Its gross profit grew 16.4% from the year-ago value to €1.82 billion ($1.95 billion).
Moreover, the company’s profit for the year rose 60.7% from the prior year’s quarter to €831 million ($889.03 million), while its adjusted EPS came in at €0.68, a 38.8% year-over-year improvement.
For the second quarter that ended July 1, 2023, INTC’s net revenue decreased 15.5% year-over-year to $12.95 billion. Its non-GAAP gross margin decreased 25% from the year-ago value to $5.15 billion.
Also, non-GAAP net income attributable to INTC came in at $547 million, down 52.4% from the prior year’s period, while non-GAAP EPS attributable to INTC declined 53.6% year-over-year to $0.13.
Past and Expected Financial Performance
Over the past three years, IFNNY’s revenue and EBITDA increased at CAGRs of 26.1% and 45.7%, respectively. Moreover, its net income and EPS rose at respective CAGRs of 95.1% and 96% during the same time period.
Analysts expect IFNNY’s revenue to increase 14.6% year-over-year to $17.61 billion for the fiscal year ending September 2023. The company’s EPS for the current year is expected to grow 35.2% from the prior year to $2.88.
Over the past three years, INTC’s revenue and EBITDA declined at a CAGR of 11.9% and 38.7%, respectively. However, the company’s total assets grew at a CAGR of 6.8% during the same time frame.
The consensus revenue estimate of $52.45 billion for the fiscal year ending December 2023 reflects a decline of 16.8% year-over-year. Moreover, the consensus EPS estimate of $0.62 for the ongoing year indicates a 66.3% decline from the prior year.
Valuation
In terms of trailing-12-month Price/Sales, IFNNY is currently trading at 2.52x, 13.4% lower than INTC, which is trading at 2.91x. Moreover, IFNNY's trailing-12-month EV/Sales multiple of 2.65 is 23% lower than INTC’s 3.44x. Additionally, IFNNY’s trailing-12-month EV/EBITDA multiple of 7.49 compares with INTC’s 21.20x.
Profitability
INTC’s trailing-12-month revenue is three times that of what IFNNY generates. However, IFNNY is more profitable, with a trailing-12-month gross profit margin of 45.73%, compared to INTC’s 38.27%.
Additionally, IFNNY’s trailing-12-month EBITDA margin and net income margin are 35.32% and 19.13%, respectively, compared to INTC’s EBITDA margin of 16.25% and net income margin of negative 1.71%.
POWR Ratings
IFNNY has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. Conversely, INTC has an overall rating of C, translating to Neutral. 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. IFNNY has a B grade for Value, justified by its lower-than-industry valuation. In terms of trailing-12-month EV/Sales, IFNNY is trading at 2.65x, 3.9% lower than the 2.75x industry average. Also, its trailing-12-month Price/Cash Flow of 10.59x is 43.7% lower than the 18.82x industry average.
On the other hand, INTC has a C grade for Value, justified by its mixed valuation. In terms of trailing-12-month EV/Sales, INTC is trading at 3.44x, 25.1% higher than the 2.75x industry average. However, the stock’s trailing-12-month Price/Cash Flow of 16.32x is 13.2% lower than the 18.82x industry average.
In addition, IFNNY has a C grade for Growth, in sync with its comparatively better past growth record, while INTC has a D grade for Growth, justified by its poor historical record.
Of the 92 stocks in the Semiconductor & Wireless Chip industry, IFNNY is ranked #5, while INTC is ranked #53.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Stability, Quality, and Sentiment. Click here to view IFNNY’s ratings. Get all INTC ratings here.
The Winner
Leading chip stocks IFNNY and INTC are well-positioned to capitalize on the industry’s prospects. However, considering INTC’s comparatively poor financial performance, higher valuation, and bleak growth prospects, IFNNY seems to be a better buy now.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.
What To Do Next?
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INTC shares were trading at $38.18 per share on Monday morning, up $0.17 (+0.45%). Year-to-date, INTC has gained 47.34%, versus a 17.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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