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INTC, TXN, NVDA: Which Chip Maker to Bet On Post-Q3 Earnings?

Zacks Equity Research

As of Nov 8, around 77.4% of the tech sector companies on the S&P 500 index reported their Q3 earnings results. Total earnings for these are up 23.2% from the same period last year on 10.9% higher revenues, with 81.3% surpassing EPS estimates and 87.5% beating on revenues.

Strong earnings performance by the tech sector put the spotlight on its major sub-sector, semiconductor. In this quarter, of the eight companies that make up the broader Zacks industry, six have already reported earnings, with five beating their Zacks Consensus Estimate.

Each of the three major semiconductor chip makers, Intel Corp. INTC, NVIDIA Corp. NVDA and Texas Instruments Inc. TXN may have fundamental differences but came up with upbeat third-quarter results. In this context, let us now perform a comparative analysis of the leading players in the Semiconductors sector to pick the best investment option based on their earnings scorecard.

Both Intel and NVIDIA have a Zacks Rank #1 (Strong Buy), while Texas Instruments has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Third-Quarter Earnings

Intel Corp. reported third-quarter non-GAAP earnings of $1.01 per share, which beat the Zacks Consensus Estimate by 21 cents. The figure surged 26.3% from the year-ago quarter and 40.3% sequentially. The strong earnings growth was driven by better-than-expected top-line performance and operating margin expansion.

Revenues totaled $16.15 billion, up 2.4% year over year and 9.4% quarter over quarter. The figure beat the Zacks Consensus Estimate of $15.71 billion. The top-line growth came on the back of strong data-centric growth. (Read More)

NVIDIA Corporation reported stellar fiscal third-quarter results, continuing its earnings streak for the 10th straight quarter. This graphic chip behemoth posted quarterly earnings of $1.33 per share on a non-GAAP basis, up nearly 60.2% year over year. The bottom line also came ahead of the Zacks Consensus Estimate of 94 cents.

Also, revenues surged 31.5% year over year to $2.636 billion, and comfortably surpassed the Zacks Consensus Estimate of $2.364 billion, as well as management’s projection of $2.35 billion. (Read More)

Texas Instruments reported third-quarter earnings of $1.26 per share, beating the consensus mark by 14 cents. Earnings also increased 34% year over year and 22.3% sequentially. Strong results were mainly driven by strength in the auto and industrial markets.

Revenues of $4.15 billion beat the Zacks Consensus Estimate by $199 million and were up 12% on a year-over-year basis and 11.5% sequentially. The top line came ahead of the guided range of $3.74–$4.06 billion. (Read More)

Guidance

Intel guided fourth-quarter revenues of around $16.3 billion, up 3% year over year excluding McAfee. The projected figure is better than the Zacks Consensus Estimate of $16.12 billion. Further, non-GAAP earnings are anticipated at 86 cents per share, up 15% on a year-over-year basis. The Zacks Consensus Estimate is currently pegged at 83 cents.

For fiscal fourth-quarter, NVIDIA expects revenues of approximately $2.65 billion, which is much above the Zacks Consensus Estimate of $2.44 billion.

Moreover, Texas Instruments expects revenues between $3.57 billion and $3.87 billion. The mid-point of the guidance is above the Zacks Consensus Estimate of $3.67 billion. Earnings for the quarter are expected in the range of $1.01 to $1.15 per share. The lower end of the range is in line with the Zacks Consensus Estimate.

Price Performance

In the last year, NVIDIA has outperformed the industry with an average gain of 126.7% compared with 53.1% increase for the latter. Although, Intel and Texas Instruments have advanced 30.6% and 35.4%, respectively in the last one year, both the companies underperformed the industry. NVIDIA is a clear winner on this count.

Earnings History and Estimate Revisions

All the three major chipmakers delivered positive surprises in each of the last four quarters. Intel, NVIDIA and Texas Instruments posted an average positive earnings surprise of 9.8%, 33.5% and 9.2%, respectively.

In the last 30 days, Intel’s current-quarter estimates increased by 4 cents to 86 cents per share, while that for the current year advanced from $3.00 to $3.23 per share. NVIDIA’s current-quarter estimates advanced from $0.96 to $1.13 last month while current-year estimates jumped by 52 cents to $4.13 per share.

Texas Instruments’ current-quarter estimates rose 7 cents to $1.08 last month and current-year estimates climbed from $4.13 to $4.33 per share. NVIDIA holds an edge over the other two companies with respect to both earnings history and estimate revisions.

Valuation

The price-to-sales ratio is particularly relevant in a consumer-focused industry like semiconductor manufacturing, the fortunes of which are dictated by the variation in sales. This ratio is ideal for comparing companies from same sector by dividing the stock price of the company with its sales.

Coming to the three stocks under consideration, NVIDIA and Texas Instruments are overvalued than the industry, which has a P/S ratio of 4.59. NVIDIA is also pricier than the other two, since it has a P/S ratio of 11.76, higher than Intel’s and Texas Instruments’ respective reading of 3.36 and 6.25. Clearly NVIDIA is overvalued than both Intel and Texas Instruments.

Conclusion

In our comparative analysis, we find that the P/S ratio of NVIDIA is higher than both Intel and Texas Instruments. However, when considering price performance, NVIDIA holds a strong edge over Intel and Texas Instruments. Moreover, in the third quarter, NVIDIA witnessed considerably better year-over-year earnings growth than the other two chipmakers.

Additionally, when we take a more comprehensive look at the companies’ previous earnings performance and estimate revisions, NVIDIA is clearly the best stock among the three chipmakers. In this respect, it can be concluded that NVIDIA is clearly a better investment proposition than Intel and Texas Instruments.

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