Best buy in the bear market: Nvidia vs. Intel

Best buy in the bear market: Nvidia vs.  Intel

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the Nasdaq Composite the level of the index is down about 25% year-to-date, and many semiconductor stocks have seen big sell-offs during 2022 trading. In addition to concerns about the possibility of a prolonged recession and other macroeconomic pressures affecting the market in general, manufacturing problems and geopolitical risk factors have also caused investors to abandon semiconductor stocks.

nvidia (INTC 2.31%) Y Intel (NVDA 2.84%) they are leading chip companies that have seen big sell-offs, with their shares now trading down about 40% and 53% this year, respectively. Which of these semiconductor players is the best buy amid today’s bear market conditions? Read on for different takes from two Motley Fool collaborators.

A chip sticking out of a circuit board.

Image source: Getty Images.

Nvidia has proven its ability to innovate

Parkev Tatevosian: A proven ability to innovate is one of the factors I rate highly when considering investing in a technology company. That means more than developing a single excellent product or service. Nvidia has arguably demonstrated its innovative capabilities by repeatedly improving its graphics processing units (GPUs). These highly desirable computer chips power many of today’s automotive gaming devices, servers, and cockpit displays.

Strong customer demand has driven Nvidia’s revenue from $4.1 billion in 2014 to $26.9 billion in its last full year. Of course, sales spiked after the start of the pandemic, as people invested in home offices and played games more often, and digital-native businesses needed more server capacity. Nvidia capitalized on the shift in consumer behavior, selling its GPUs at premium prices and generating a gross profit margin of more than 62% for three years in a row.

In fact, Nvidia’s hard-to-replicate products have allowed the company to grow earnings per share at a compound annual rate of 32.3% over the past 10 years. Admittedly, Nvidia faces short-term headwinds as economies have reopened and consumer behavior has rapidly changed again. Additionally, Nvidia chip sales are strongly correlated with cryptocurrency prices because they can help people earn digital assets.

Those two red flags for Nvidia could drag down sales and profits in the coming quarters. Still, long-term investors could take that as an opportunity to buy shares of this proven innovator at lower prices.

Intel could be the safest stock in today’s turbulent market

Keith Noonan: Intel has been struggling due to weak demand and margins and competition from advanced micro devices in its main product categories of server and central processing unit. The company’s second-quarter performance was admittedly quite disappointing, with non-GAAP (adjusted) revenue falling 17% year-over-year to $15.3 billion and adjusted earnings per share falling 79%. At the same time, Chipzilla barely has a growth-dependent valuation, with its shares trading at just 13.5 times this year’s expected earnings.

Intel also pays a hefty dividend, with a current yield of about 4.7%. Whether or not the company should reduce its payout and focus resources on growth initiatives is an issue on which investors appear to be divided, but its ability to support the payout has improved thanks to financing options stemming from CHIPS and Science recently. approved. Act. The stock’s strong performance could provide some short-term protection if volatility continues to affect the broader market.

Intel is preparing to improve its competitive position in key categories and its move to secure early access to ASML exploitationNext-generation semiconductor fabrication machines could suggest that you have some promising chip designs that will help you start to pick up the slack in the years to come.

Chipzilla’s product portfolio looks weaker than Nvidia’s, and its recent business slowdown is more dramatic, but Nvidia is also trading at about 41 times this year’s expected earnings and 12.6 times expected sales, even after large settlements. Intel’s more conservative valuation and turnaround potential could make it the best buy in today’s market.

Which semiconductor stock is the best buy?

Nvidia’s strengths in high-performance GPUs and chips that can be used for data centers, artificial intelligence, machine vision and other applications have helped it grow at a rapid pace and generate superior margins in recent years. The company’s position in the overall semiconductor industry appears stronger than Intel’s, and Nvidia is probably the best stock for growth-oriented investors.

But if you’re worried that the current Nasdaq bear market could last a while, Nvidia might have to drop further from current valuation levels, and Intel might be the better buy. For investors who would prefer to invest in more conservatively priced companies with recovery potential, Intel is probably the best fit for their portfolio. This is a case where choosing between stocks should depend on your personal risk appetite and assessment of the relationship between each company’s respective valuation and growth prospects.

Keith Noonan has no position in any of the stocks mentioned. Parkev Tatevosian has no position in any of the mentioned stocks. The Motley Fool has positions and recommends ASML Holding, Advanced Micro Devices, Intel and Nvidia. The Motley Fool recommends the following options: January 2023 Long Calls $57.50 at Intel and January 2023 Short Options $57.50 at Intel. The Motley Fool has a disclosure policy.



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