jiefengjiang
thesis
Amid the China Vs. US tech war, (1) a slowing semiconductor cycle (2) and the ongoing broad market sell-off that is particularly brutal for tech companies (3), Intel (NASDAQ:INTC) and NVIDIA (NASDAQ: NVDA) are get a lot of attention. I used to claim that Intel is a value trap and Nvidia is pressured by multiple issues. At the same time, I’ve argued that both companies’ valuations are down about 30%.
Since my respective analyses, Intel is down about 18% and Nvidia is down about 27%. With valuations approaching my price targets, is there a buying opportunity for Nvidia or Intel? Which Stock Is Better Positioned For A Rebound? In this article, I highlight a few arguments that should be considered.
share price development
Before we look at the financials, let’s briefly talk about the stock performance of Nvidia and Intel. This should serve as a reference that condenses multi-dimensional information into a single time-dependent path.
Year to date, both Nvidia and Intel have lost a significant portion of their respective stock values: INTC is down 45% versus NVDA’s 56% loss. Accordingly, Intel performed slightly better.
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However, if an investor takes a longer-term perspective, then Nvidia is clearly the winner. Over the past 5 years, NVDA stock is up 181% while Intel has lost about 21% of shareholder stock value.
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And if we judge based on the last 10 years, Nvidia has outperformed Intel by about 3,240 percentage points.
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(1:0 for NVIDIA)
Technology & Products
The relative price action underscores a very important takeaway: Nvidia is a structural growth company, while Intel — as I highlighted in my article — is showing signs of a value trap.
Notable highlights of Nvidia’s product portfolio include (not exhaustive):
- GeForce GPUs for a cutting-edge gaming experience, and GeForce NOW to support compute-intensive game streaming services and infrastructure
- vGPU software to support cloud-based visual and virtual computing
- The “Omniverse” software for immersive and virtual 3D worlds
- Various solutions for data center and cloud computing
- Nvidia Drive for autonomous driving technology
- And, of course, high-performance processors for cryptocurrency mining.
Accordingly, Nvidia is well positioned to grow alongside the gaming industry, the crypto industry, the virtual reality revolution, cloud computing and data center expansion, and the autonomous driving revolution.
Intel offers (not fully):
- CPUs for all major PC manufacturers. Although Intel is the market leader, the company has repeatedly lost shares in AMD in the recent past
- GPU’s
- Software products like OneAPI Suite, Command Center, XeSS and more
- Mobileye, Intel’s own self-driving car project
- Connectivity solutions including Intel Wi-Fi, Intel Ethernet, Killer and Thunderbolt
- supercomputer
Intel is also arguably positioned to grow with the gaming industry, the expansion of cloud computing and data centers, and the autonomous driving revolution. However, Intel’s product strategy covers a much broader range of possibilities. This has historically been a challenge for the company as Intel has struggled to defend market share in most industries and has lost the technological edge over more focused players like Nvidia and AMD (AMD).
(2-0 for NVIDIA)
growth
Looking at the key structural trends in technology, specifically AI computing (1), immersive gaming and the Metaverse (2), and high-performance data analytics (3), I contend that Nvidia is better positioned than Intel to deliver the next-generation chip generation to support technology. This has been reflected in Nvidia’s relative growth versus Intel and will likely continue to do so.
Regarding the last 5 years, Nvidia has grown at a CAGR of 25%, while Intel has grown at less than 1% CAGR over the same period.
Furthermore, according to analyst consensus estimates, this trend is expected to continue. Year-over-year revenue growth is estimated at 24% for Nvidia versus a 4% revenue decline for Intel.
(3-0 for NVIDIA)
profitability
Both Nvidia and Intel operate a profitable business. But on a relative basis, Nvidia wins again. For the trailing twelve months, Intel has reported a gross profit margin of 50%, which is the industry median. But Nvidia has achieved a gross profit margin of 60% (20% higher than Intel). The operating profit margin (EBIT, TTM reference) is also significantly higher for Nvidia: 31% versus 17%.
Investors should also keep in mind that Nvidia is much more capital efficient. Nvidia’s return on investment is 16% (TTM reference) versus 6% for Intel. Additionally, Nvidia generates twice the net income per employee: $344,000 versus $158,000.
Intel profitability
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Nvidia profitability
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(4:0 for NVIDIA)
valuation
Both stocks are down significantly since the start of the year, making them much cheaper than they were just a few months ago. But relatively speaking, Intel trades cheap while Nvidia is expensive.
According to data compiled by Seeking Alpha, Intel is valued at a one-year forward P/E of x11. This means a 46% discount for the sector. Nvidia’s price-to-earnings ratio for one year is x72, which is a premium of 247%.
Taking into account the financial leverage, the picture is slightly more favorable for Nvidia. But the scatter is still significant. Nvidia’s EV/EBIT for a year ahead is x35 (123% premium for the sector) vs. x12 for Intel (20% discount for the sector).
(4:1 for NVIDIA)
Conclusion
Intel is cheaper than Nvidia. But Nvidia wins in terms of the company’s product portfolio (1), business growth (2), and profitability (3). This is reflected in NVDA’s relative performance versus INTC, as NVDA has outperformed the latter by 3,240 percentage points.
In summary, I think Nvidia is clearly taking advantage of emerging technology trends like Metaverse and AI computing, while Intel is taking a more defensive strategy. So while the former is poised to capture massive new growth opportunities, the latter is struggling to maintain its market share. Accordingly — while I think it’s too early for a rebound in semiconductor stocks — I’d personally feel much more comfortable buying NVDA stock’s decline.
