😎 Summer Sale Exclusive - Up to 50% off AI-powered stock picks by InvestingProCLAIM SALE

Pro Research of the Week: Forget Nvidia, Consider This Chipmaker Instead

Published 05/26/2023, 06:18 AM
INTC
-
QCOM
-
NVDA
-
MU
-
AMD
-
NXPI
-
TSM
-
  • Nvidia stock has skyrocketed and is highly overvalued now
  • So, buying it now is very risky, and you should consider other chipmakers instead
  • According to InvestingPro, for those looking to invest in chipmaker stocks, Qualcomm fits the bill perfectly
  • The semiconductor industry has garnered significant attention due to the surge in demand for artificial intelligence (AI) technologies. On Wednesday evening, NVIDIA (NASDAQ:NVDA) unveiled its first-quarter earnings, further fueling the already heightened excitement surrounding the sector.

    Exceeding market expectations, the company's impressive profits and sales triggered a remarkable stock rally of nearly 25%.

    Nvidia Earnings

    Source: InvestingPro

    EPS came in at $1.09, 18.8% higher than the 0.92 expected, while revenues reached $7.1 billion, a positive surprise of 10.3% versus consensus. In addition, the Santa Clara, California-based chipmaker reported optimistic forecasts, thanks in large part to the positive outlook for AI.

    Artificial Intelligence relies on the use of super-powered computing components, a field in which Nvidia is currently the world leader. The problem, from an investor's point of view, is that it's perhaps a little too obvious that Nvidia will be one of the biggest beneficiaries of AI's widespread use.

    Investors have been flocking to the stock since the start of the year. The stock has clocked a phenomenal 160% gain since the start of 2023, raising concerns that its potential has been exhausted, at least for now. And now, they may be wondering which chip stock to consider now that Nvidia's valuation has become too risky.

    To answer these questions, we turned to the InvestingPro tool to compare the leading chip stocks listed in the US. Specifically, we gathered 7 of the most important US chip stocks into an advanced Watchlist.

    In addition to Nvidia, we have included its main competitor Advanced Micro Devices (NASDAQ:AMD), Intel (NASDAQ:INTC), and Taiwan Semiconductor Manufacturing (NYSE:TSM), as well as smaller companies such as Micron (NASDAQ:MU), NXP Semiconductors NV (NASDAQ:NXPI) and Qualcomm (NASDAQ:QCOM).

    InvestingPro Watchlist

    Source: InvestingPro

    Based on the data from InvestingPro, it appears that Nvidia's stock is currently valued very highly, with a P/E ratio of 196. While this is lower than AMD's P/E ratio, it is still much higher than the average for the sector.

    What's more, we can see that Nvidia's InvestingPro Fair Value, which uses several recognized financial models to determine a fair value for any stock, stands at $263.86, which translates into a downside risk of 30.5% from the current price.

    As for other stocks, AMD, Micron, Intel, NXP, and Taiwan Semiconductor are fairly valued according to InvestingPro, with limited upside potential or negative according to the InvestingPro Fair Value models and average analyst targets.

    Only one stock on this list is therefore considered undervalued by the InvestingPro models: Qualcomm, which is the only stock on this list considered undervalued by analysts, and which shows the greatest bullish potential not only according to InvestingPro Fair Value but also according to analysts. Finally, Qualcomm is also the stock on this list with the lowest P/E ratio.

    Qualcomm: Unfairly Criticized?

    A quick glance at the daily chart of Qualcomm shares doesn't exactly give us much incentive to invest. Since its all-time high of over $193.58 in January 2022, the stock has been in a powerful downtrend.

    Qualcomm Daily Chart

    Source: Investing.com

    In particular, the stock bottomed out at $101.58 on Wednesday, a threshold not touched since July 2020.

    It's also interesting to note that the latest results seem to have unfairly and heavily punished the company. On May 3, the company published EPS that was marginally below consensus and sales that exceeded expectations by 1.7%.

    Yet the share plunged by over 8% the following day and then continued to fall, suggesting that the valuation may now be attractive for a buy.

    Dividends: Another Reason to Consider Qualcomm

    One notable perk of owning this stock is its dividend payout.

    Qualcomm Dividends

    Source: InvestingPro

    With a yield of 3.11%, Qualcomm's dividend is one of the highest among chip stocks.

    Qualcomm Dividend Payout History

    Source: InvestingPro

    According to InvestingPro data, the dividend has been consistently increasing for the past 20 years and there are no indications of this trend slowing down.

    Solid Financial Health

    Finally, it's reassuring to note that Qualcomm's financial health ratings are solid.

    Qualcomm Financial Health

    Source: InvestingPro

    According to InvestingPro's financial health ratings, Qualcomm's financial performance is rated 4 out of 5.

    Qualcomm Financial Health History

    Source: InvestingPro

    On top of that, the San Diego, California-based chipmaker's financial health ratings trend has been positive in recent years.

    Conclusion

    Although Nvidia is an attractive name amid the AI buzz, it is probably not an ideal time to buy the stock, as it is overvalued. However, this doesn't mean that all chip stocks should be shunned.

    Our analysis has revealed that there are several companies to consider buying right now, such as Qualcomm, that have a lot of room to rally based on current valuations.

    If you're interested in conducting your own research using a powerful analysis tool, you can sign up for a free 7-day trial of InvestingPro today!

    Find All the Info you Need on InvestingPro!

    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remain with the investor.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.