In this article, I have compared the fundamentals of two prominent chip stocks, Intel Corporation (INTC) and NXP Semiconductors N.V. (NXPI). As elaborated in the following sections, my analysis leads me to favor NXPI as the top choice for the current week.
The growing adoption of cutting-edge technologies like Artificial Intelligence (AI) and the Internet of Things (IoT) is driving the demand for semiconductor chips. Also, the rising popularity of Electric Vehicles (EVs) is significantly boosting the semiconductor industry.
According to a report by Research and Markets, the global semiconductor market is projected to grow at a CAGR of 8% to reach $971.71 billion by 2028.
Additionally, increasing demand for memory-intensive applications in smartphones, data centers, and emerging technologies is bolstering the memory chip industry.
The worldwide memory chip market had an estimated value of around $181.50 billion in the last year. IMARC Group's forecasts suggest that the market is set to reach $460.90 billion by 2028, showing a remarkable CAGR of 16.2%.
In terms of price performance, INTC has gained 47.3% over the past year, while NXPI climbed 41.5%. Also, INTC has gained 14% over the past six months compared to NXPI’s 18.4% surge.
Here are the reasons I think NXPI could perform better in the near term:
Recent Developments
On October 3, INTC announced its intent to separate its Programmable Solutions Group (PSG) operations into a standalone business. This move aims to enhance PSG's ability to accelerate its growth and compete effectively in the diverse FPGA industry, serving markets like data centers, communications, industrial, automotive, aerospace, and defense.
On the other hand, on September 19, NXPI announced measures to bolster its European research and development (R&D) through grants to be provided via the second Important Project of Common European Interest on Microelectronics and Communication Technologies (IPCEI ME/CT), with the final investment decision pending confirmation of the level of public funding.
Recent Financial Results
INTC’s total net revenue declined 15.5% year-over-year to $12.95 billion in the fiscal second quarter that ended July 1, 2023. Non-GAAP net income attributable to INTC and earnings per share decreased 52.5% and 53.6% year-over-year to $547 million and $0.13, respectively.
Conversely, NXPI’s total revenue for the fiscal second quarter that ended July 2, 2023, stood at $3.30 billion. Its non-GAAP gross profit increased marginally year-over-year to $1.93 billion. The company’s non-GAAP operating income came at $1.16 billion.
Past and Expected Financial Performance
Over the past three years, INTC’s revenue and EBITDA declined at a CAGR of 11.9% and 38.7%, while its total assets grew at a CAGR of 6.7%. INTC’s EPS is expected to amount to $0.22 in the to-be-announced quarter, $0.32 in the current quarter, and $0.63 in the current year. Its revenue is expected to come in at $13.51 billion in the to-be-announced quarter, $14.36 billion in the current quarter, and $52.47 billion in the current year.
In contrast, NXPI’s revenue and EBITDA increased at a CAGR of 18.2% and 27.8% over the past three years. Moreover, EBIT rose at a CAGR of 149% over the past three years. NXPI’s EPS is expected to amount to $3.60 in the to-be-announced quarter, $3.65 in the current quarter, and $13.90 in the current year. Its revenue is expected to come in at $3.40 billion in the to-be-announced quarter, $3.43 billion in the current quarter, and $13.52 billion in the current year.
Valuation
In terms of forward non-GAAP P/E, NXPI is currently trading at 14.63x, lower than INTC, which is trading at 58.23x. Moreover, NXPI’s forward EV/EBITDA multiple of 11.24 is lower than INTC’s 16.47.
Thus, NXPI is relatively affordable.
Profitability
NXPI is more profitable, with a trailing-12-month gross profit margin of 56.97%, higher than INTC’s 38.27%. Also, NXPI’s trailing-12-month net income margin of 21.04% compares with INTC’s negative 1.71%.
Furthermore, NXPI’s trailing-12-month ROCE, ROTC, and ROTA of 36.65%, 12.33%, and 11.65% compare to INTC’s negative 0.91%, 1.03%, and 0.50%, respectively.
POWR Ratings
INTC has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, NXPI has an overall rating of B, translating to a 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 Quality. The stock’s trailing 12-month EBITDA margin of 16.25% is 77.1% higher than the industry average of 9.17%. However, its trailing-12-month negative net income margin of 1.71% is lower than the industry average of 2.11%.
On the contrary, NXPI has a B grade for Quality. Its trailing-12-month EBITDA margin and net income margins of 37.36% and 21.04% are higher than the industry averages of 9.17% and 2.11%, respectively.
Of the 92 stocks in the Semiconductor & Wireless Chip industry, INTC is ranked #52, while NXPI is ranked #13.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view INTC’s ratings. Get all NXPI ratings here.
The Winner
The thriving semiconductor industry underscores the essential role chips play in today's technological landscape, powering a diverse range of electronic devices and applications.
Moreover, the AI chip market's rapid growth and digital transformation present a substantial opportunity for the semiconductor industry to reap significant profits. Prominent semiconductor stocks, such as INTC and NXPI, are well-positioned to capitalize on the promising growth prospects within the sector.
However, NXPI’s robust profit margins and favorable valuation multiples make it a better pick than INTC.
Our research shows that the odds of success increase when one invests in stocks with an overall A or B (Strong Buy or Buy) rating. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NXPI shares were trading at $205.01 per share on Thursday morning, up $1.55 (+0.76%). Year-to-date, NXPI has gained 31.84%, versus a 15.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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