Applied Materials, Inc. (AMAT) and QUALCOMM Incorporated (QCOM) are two established companies in the semiconductor industry. AMAT provides the materials and engineering solutions used to produce new advanced chips and displays. It operates in the following segments: semiconductor systems, applied global services, and display and adjacent markets. QCOM develops and markets technologies for the wireless industry. It is organized into three segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing and Qualcomm Strategic Initiatives.
An exponential increase in demand and limited supply are pushing semiconductor prices up. Demand is increasing mainly from the electronics and automotive industries, given the increased attention to these two industries thanks to the COVID-19 pandemic and global climate change. These factors, combined with huge government and private investments to increase the supply of semiconductors, are expected to drive the industry’s growth.
The growing investor interest in this space is evident in the 66.4% returns of the iShares PHLX Semiconductor ETF (SOXX) over the past year. And, according to Fortune Business Insights, the global semiconductor market is expected to grow at a CAGR of 8.6% between 2021 and 2028. Thus, AMAT and QCOM should benefit significantly in the coming months.
But, while AMAT has gained 126.5% in the last year, QCOM has returned 55.2%. Moreover, in terms of performance over nine months, AMAT is clearly a winner with 137.4% returns against 23.5% for QCOM. But which of these two titles is the better choice now? Let’s find out.
Click here to view our Semiconductor Industry Report for 2021
On July 1, QCOM and Capgemini, a French multinational IT consulting and services company, announced their intention to collaborate to harness the benefits of private 5G networks to support their clients’ digital transformation towards “Smart industry”. The collaboration is designed to give customers access to a fully tested and validated standard private network system. The two companies plan to design and implement many more private networks in the coming years.
AMAT unveiled a new materials engineering solution named Endura Copper Barrier Seed IMS on June 16. It improves advanced logic chip performance and power consumption, allowing logic scaling to continue to 3nm and beyond.
AMAT’s new engineering solution is likely to see huge demand from major foundry logic customers in the coming months.
Recent financial results
QCOM’s non-GAAP revenue grew 52.2% year-on-year to $ 7.93 billion for its fiscal second quarter, ended March 28, 2021. Its non-GAAP net income was $ 2. $ 19 billion, up 115.3% from the previous year. Its non-GAAP EPS was $ 1.90, up 115.9% year-over-year.
For the first quarter, ended May 2, 2021, AMAT’s revenue was $ 5.58 billion, an increase of 41.1% over the previous year quarter. . The company’s non-GAAP net income for the quarter was $ 1.51 million, up 84.7% from the prior year quarter. Its non-GAAP EPS was $ 1.63, up 83.1% year-over-year.
Past and expected financial performance
QCOM’s revenue and EBITDA have grown at CAGRs of 9.3% and 17%, respectively, over the past three years. The company’s revenue is expected to increase 30.2% for the current quarter, ending September 30, 2021, and 48.5% for the current year. QCOM’s EPS is expected to increase 40% for the current quarter and 85.2% for the current year. In addition, its EPS is expected to grow at a rate of 27.3% per year over the next five years.
In comparison, AMAT’s revenue and EBITDA grew at CAGRs of 6.3% and 6.2%, respectively, over the past three years. Analysts expect AMAT’s revenue to grow 28.9% for the next quarter, ending October 31, 2021, and 32.1% for the current year. Its EPS is expected to increase 44.8% for the next quarter and 58% for the current year. AMAT’s EPS is expected to grow at a rate of 24.9% per year over the next five years.
QCOM’s $ 29.41 billion revenue over the past 12 months is 1.5 times AMAT’s $ 19.83 billion. In addition, QCOM is more profitable, with a gross margin of 60% against 46% for AMAT.
In addition, the ROE of 153.3% and 16.1% of QCOM and ROA, respectively, compare favorably with 42.2% and 15.5% of AMAT.
In terms of forward EV / S, AMAT is currently trading at 5.52x, which is 7.6% higher than QCOM’s 5.13x. In terms of forward EV / EBITDA, AMAT’s 16.98x is 26.6% higher than QCOM’s 13.41x.
Thus, QCOM is the most affordable stock.
QCOM has an overall rating of B, which is equivalent to a purchase in our proprietary POWR rating system. However, AMAT has an overall C rating, which stands for Neutral. POWR scores are calculated taking into account 118 different factors, each weighted to an optimal degree.
In terms of growth, QCOM received a B rating, which is in line with its 105% year-over-year EPS growth. However, AMAT’s C rating for growth reflects its relatively lower EPS growth rate. AMAT also has a C rating for value. This reflects its forward EV / EBITDA of 16.98x, which is the industry average. QCOM has a B rating for value, in line with its forward EV / EBITDA of 13.41x, which is 21% below the industry average of 16.98x.
Of the 99 stocks in the semiconductor and wireless chip industry rated B, QCOM is ranked No.6 and AMAT is ranked No.43.
In addition to the POWR ratings just highlighted, we have rated both AMAT and QCOM for quality, stability, feel and momentum. Click here to see additional notes for QCOM. Also get all AMAT ratings here.
With the increasing application of semiconductors in several industries, the industry is expected to experience exponential growth. While both QCOM and AMAT are well positioned to take advantage of favorable industry winds, QCOM’s relatively lower valuation and higher profit growth potential make it a better buy.
Our research shows that the odds of success increase when betting on stocks with an overall buy or strong buy POWR rating. Click here to learn more about the top-rated stocks in the B-rated wireless semiconductor and chip industry.
Click here to view our Semiconductor Industry Report for 2021
QCOM shares were trading at $ 140.62 per share on Tuesday afternoon, down $ 1.96 (-1.37%). Since the start of the year, QCOM is down -6.78%, compared to a 16.35% increase in the benchmark S&P 500 over the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s keen interest in capital markets, wealth management and financial regulatory issues led him to a career as an investment analyst. Its goal is to educate individual investors by making complex financial issues easy to understand. After…