The broad usage of chips across a diverse array of end-use applications like consumer electronics, industrial equipment, automotive, data processing, and telecommunications is the primary factor fueling the semiconductor sector’s growth. Moreover, the rapidly rising AI, machine learning, IoT, and wireless communications devices are spurring chip demand.
The Semiconductor Industry Association (SIA) announced that global semiconductor industry sales totaled $46.20 billion for February 2024, reflecting a 16.3% increase compared to February 2023. Further, SIA forecasts a 13.1% growth in global chip sales to $595.30 billion in 2024, compared to a decline of about 8% last year.
Besides, according to a Precedence Research report, the global semiconductor market size is expected to value $1.14 trillion by 2033, poised to grow at a CAGR of 7.6% during the forecast period (2024-2033).
Given this backdrop, let’s compare two Semiconductor & Wireless Chip stocks, Broadcom Inc. (AVGO) and NVIDIA Corporation (NVDA), to understand which stock will perform better in May.
The Case for Broadcom Inc. Stock
Broadcom Inc. (AVGO) designs, develops, and supplies various semiconductor devices focusing on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products globally. It operates in two segments: Semiconductor Solutions and Infrastructure Software. Its market cap currently stands at $622.87 billion.
AVGO’s stock declined 1.3% over the past month but gained 109.8% over the past year to close the last trading session at $1,338.62.
On April 9, 2024, AVGO and Google Cloud expanded their partnership to involve optimizing AVGO's VMware workloads for Google Cloud, collaborating on go-to-market initiatives, adding more AVGO products and services to Google Cloud marketplace, and AVGO infusing Google Cloud's generative AI capabilities.
The strategic collaboration will help the companies deliver the best user experience to customers running the most advanced IT infrastructure in the world.
On March 20, AVGO expanded its broad portfolio of technologies to extend its leadership in enabling next-generation AI infrastructure, including foundational technologies and advanced packaging capabilities, aiming to build the highest performance, lowest power custom AI accelerators.
The company’s latest AI infrastructure innovations involve delivering its industry-first 51.2T Bailly CPO Ethernet switch, optical interconnect solutions supporting 200G/lane for AI and ML applications, and the industry’s first end-to-end PCIe connectivity portfolio.
In terms of forward non-GAAP PEG, AVGO is trading at 1.90x, marginally lower than the industry average of 1.91x. However, the stock’s forward EV/EBITDA of 22.76x is 56.9% higher than the industry average of 14.50x. Also, its forward Price/Sales of 12.35x is 340.4% higher than the 2.80x industry average.
AVGO’s trailing-12-month gross profit margin and EBIT margin of 74.24% and 39.51 are 52.5% and 709.3% higher than the industry average of 48.70% and 4.88%, respectively. However, its trailing-12-month asset turnover ratio of 0.31x is 49.5% lower than the industry average of 0.61x.
In the first quarter that ended February 4, 2024, AGVO’s revenue increased 34.2% year-over-year to $11.96 billion. Its non-GAAP operating income grew 25.8% from the year-ago value to $6.83 billion. Its non-GAAP net income and non-GAAP EPS came in at $5.25 billion and $10.99, up 17.2% and 6.4% from the prior year’s quarter, respectively.
However, as of February 4, 2024, the company’s total cash and cash equivalents came at $11.86 billion, compared to $14.19 billion as of October 29, 2023.
Street expects AVGO’s revenue and EPS for the second quarter (ending April 2024) to increase 37.4% and 5.2% year-over-year to $12 billion and $10.86, respectively. Moreover, the company topped the consensus EPS and revenue estimates in each of the trailing four quarters.
AVGO’s POWR Ratings reflect its mixed outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a C grade for Growth and Stability. In the Semiconductor & Wireless Chip industry, AVGO is ranked #49 among 92 stocks.
To check additional POWR Ratings for Value, Momentum, Sentiment, and Quality of AVGO, click here.
The Case for NVIDIA Corporation Stock
NVIDIA Corporation (NVDA) provides graphics and compute & networking solutions internationally. It offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service, and related infrastructure. It also provides Data Center computing platforms and end-to-end networking platforms. Its market capitalization currently stands at $622.87 billion.
NVDA’s stock has surged 203.5% over the past year to close the last trading session at $877.57. However, the stock has plunged 4.2% over the past month.
On March 18, NVDA launched a 6G research cloud platform to empower researchers with a novel approach to develop the next phase of wireless technology. The NVIDIA 6G Research Cloud platform is open, flexible, and interconnected, providing researchers with a comprehensive suite to advance AI for radio access network (RAN) technology.
Industry-leading researchers can use all elements of the cloud platform to advance their work, and companies like Ansys, Arm, ETH Zurich, Fujitsu, Keysight, Nokia, Northeastern University, Rohde & Schwarz, Samsung, SoftBank Corp., and Viavi became the first adopters and ecosystem partners.
Also, on March 18, NVDA and SAP SE (SAP) expanded their partnership to focus on accelerating enterprise customers' ability to harness the transformative power of data and generative AI across SAP's portfolio of cloud solutions and applications.
The strategic partnership aligns well with companies’ plans to maximize the potential and opportunity of AI for business, thereby helping customers adopt generative AI capabilities at scale across their organizations.
In terms of forward non-GAAP PEG, NVDA is trading at 1.04x, 45.5% lower than the industry average of 1.90x. However, its forward EV/EBIT of 29.46x is 50.7% higher than the 19.54x industry average. Also, the stock’s forward Price/Sales of 19.32x is significantly higher than the industry average of 2.81x.
NVDA’s trailing-12-month EBIT margin and net income margin of 54.12% and 48.85% are considerably higher than the respective industry averages of 4.71% and 2.64%. However, the stock’s trailing-12-month CAPEX/Sales of 1.75% is 24.8% lower than the industry average of 2.33%.
During the fourth quarter that ended January 28, 2024, NVDA’s revenue increased 265.3% year-over-year to $22.10 billion. Its non-GAAP operating income grew 563.3% from the year-ago value to $14.75 billion. The company’s non-GAAP net income and non-GAAP EPS of $12.84 billion and $5.16 indicate growth of 490.6% and 486.4% year-over-year, respectively.
According to the outlook for the first quarter of fiscal 2025, NVDA expects revenue of $24.0 billion, plus or minus 2%.
Analysts expect NVDA’s revenue for the first quarter (ending April 2024) to increase 238.4% year-over-year to $24.34 billion, and its EPS for the ongoing quarter is expected to grow 407.9% year-over-year to $5.54. Also, the company has surpassed the consensus EPS and revenue estimates in all of the trailing four quarters.
NVDA’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a B grade for Quality, Growth, and Momentum. It also has a D grade for Value. NVDA is ranked #20 in the Semiconductor & Wireless Chip industry.
In addition to the POWR Ratings I’ve just highlighted, you can see NVDA’s ratings for Sentiment and Stability here.
AVGO vs. NVDA Earnings Alert - Which Chip Stock Will Perform Better in May?
The chip industry is poised for continued growth due to surging demand across several sectors, including consumer electronics, automotive, and industrial. Also, the rising integration of IoT devices, AI, and cloud computing boosts the requirement for tailored, high-performance chips.
Both AVGO and NVDA stand to capitalize on these burgeoning semiconductor industry trends. However, waiting for a better entry point in these stocks could be wise now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. 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.
NVDA shares were trading at $879.50 per share on Tuesday morning, up $1.93 (+0.22%). Year-to-date, NVDA has gained 77.61%, versus a 7.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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