The chip industry is growing with surging demand thanks to the rapid adoption of advanced technologies. Therefore, we explore the fundamentals of semiconductor giants NVIDIA Corporation (NVDA) and Qorvo (QRVO) to determine if they are suitable portfolio additions to capitalize on the industry’s tailwinds. Read on….
Despite macroeconomic challenges, the semiconductor industry has witnessed steady growth with increasing applications across various sectors. The rapid adoption of advanced technologies and AI has accelerated the growth pace for several semiconductor companies.
For reasons discussed throughout this article, I think keeping an eye on quality semiconductor stocks NVIDIA Corporation (NVDA) and Qorvo, Inc. (QRVO) could be worthwhile.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the chip industry.
The semiconductor industry is shaped by significant growth factors, including government incentives and the extensive integration of chips in various sectors such as electronics, automotive, and emerging technologies like AI and the Internet of Things (IoT).
Gartner predicts AI chip revenue to reach $53.4 billion this year, reflecting a 20.9% growth from the previous year. This increase is expected to be propelled by the rising demand for high-performance GPUs and optimized semiconductor devices crucial for generative AI platforms.
Global semiconductor sales increased by 1.9% in September compared to the previous month. The total sales for semiconductors worldwide reached $134.70 billion in the third quarter, marking a 6.3% year-over-year increase.
Furthermore, Precedence Research forecasts that the global semiconductor market will reach $1.88 trillion by 2032, growing at a CAGR of 12.3%.
Considering these conducive trends, let’s take a look at the fundamentals of the two Semiconductor & Wireless Chip stocks to add to your watchlist, starting with the second in line.
Stock #2: NVIDIA Corporation (NVDA)
NVDA provides graphics, computing, and networking solutions in the United States, Taiwan, China, and internationally. It operates in two segments: Graphics Segment and Compute & Networking Segment. The company’s products are used in gaming, professional visualization, data centers, and automotive markets.
On December 7, 2023, NVDA announced a milestone with 500 games and apps powered by RTX, using DLSS, ray tracing, and AI to transform gaming and creative work. Ray tracing and DLSS, supported by dedicated RT and Tensor Cores, enhance visual quality and performance. The achievement underscores the impact of NVDA’s RTX since its launch in 2018.
On December 7, 2023, NVDA announced that the SiBORG Lab, led by Mathew Schwartz, uses NVIDIA Omniverse and OpenUSD to improve building design accessibility. Omniverse and OpenUSD integration enables seamless collaboration and visualization, expanding research capabilities. The announcement highlights OpenUSD’s strength and Omniverse’s collaborative environment.
In terms of the trailing-12-month EBITDA margin, NVDA’s 49.39% is 434% higher than the 9.25% industry average. Its 42.10% trailing-12-month net income margin is significantly higher than the 2.35% industry average. Likewise, the stock’s 2.95% trailing-12-month Capex/Sales is 26.4% higher than the 2.33% industry average.
For the third quarter that ended on October 29, NVDA’s revenue increased 205.5% year-over-year to $18.12 billion. Its operating income increased 652.4% from the prior-year quarter to $11.56 billion. Additionally, the company’s net income and EPS came in at $10.02 billion and $4.02, up 588.2% and 593.1% over the prior-year quarter, respectively.
However, as of October 29, 2023, NVDA’s total liabilities and shareholders’ equity stood at $54.15 billion compared to $41.18 billion as of January 29, 2023.
Street expects NVDA’s EPS and revenue for the quarter ending January 31, 2024, to increase 408.5% and 231.1% to $4.47 and $20.03 billion, respectively. It surpassed the Street EPS estimates in all of the trailing four quarters. The stock has gained 225.1% year-to-date to close the last trading session at $475.06.
NVDA’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #29 out of 91 stocks in the Semiconductor & Wireless Chip industry. Click here to see NVDA’s Growth, Value, Momentum, Stability, Sentiment, and Quality ratings.
Stock #1: Qorvo, Inc. (QRVO)
QRVO develops and commercializes technologies and products for wireless, wired, and power markets. It operates through three segments: High Performance Analog (HPA), Connectivity and Sensors Group (CSG), and Advanced Cellular Group (ACG).
In terms of the trailing-12-month Capex/Sales, QRVO’s 4.36% is 86.9% higher than the 2.33% industry average. Its 11.59% trailing-12-month EBITDA margin is 25.3% higher than the 9.25% industry average. However, the stock’s 0.44x trailing-12-month asset turnover ratio is 28.1% lower than the 0.62x industry average.
QRVO’s revenue for the fiscal second quarter ended September 30, 2023, decreased 4.7% year-over-year to $1.10 billion. Its non-GAAP gross profit increased 87.9% year-over-year to $525.25 million. Its non-GAAP operating income rose 498.3% over the prior-year quarter to $279.43 million.
For the same quarter, its non-GAAP net income and net income per share came in at $235.51 million and $2.39, up 601.4% and 602.9% year-over-year, respectively.
For the fiscal year ending December 31, 2023, QRVO’s EPS and revenue are expected to increase 120.9% and 34.9% year-over-year to $1.66 and $1 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 2.6% to close the last trading session at $103.97.
QRVO’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Value, Sentiment, and Quality. It is ranked #23 in the Semiconductor & Wireless Chip industry. In total, we rate QRVO on eight different levels. Beyond what we stated above, we also have given QRVO grades for Growth, Momentum, and Stability. Get all the QRVO’s ratings 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.
2024 Stock Market Outlook >
NVDA shares rose $0.26 (+0.05%) in premarket trading Monday. Year-to-date, NVDA has gained 225.22%, versus a 21.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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