While the supply constraints have already impacted the semiconductor industry, Russia’s invasion of Ukraine could lead to further chip shortages. However, robust demand from consumer electronics and electric vehicles industries has allowed semiconductor companies to raise prices and generate substantial profits. Furthermore, continuing advancements in artificial intelligence (AI), the Internet of Things (IoT), and 5G connectivity are expected to keep driving demand in the semiconductor sector. According to a Fortune Business Insights report, the global semiconductor market is projected to grow at an 8.6% CAGR by 2028. Therefore, both Micron Technology (MU) and Advanced Micro Devices (AMD) should benefit.
MU designs, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit. AMD operates in two segments: Computing and Graphics; and Enterprise, Embedded, and Semi-Custom. Its products include x86 microprocessors, chipsets, discrete and integrated graphics processing units, data centers, and professional GPUs.
AMD has gained 11% over the past six months, while MU has returned 6%. Which of these two stocks is a better buy now?
Click here to checkout our Semiconductor Industry Report for 2022
Latest Developments
On March 1, 2022, MU announced it is sampling the world’s first vertically-integrated 176-layer NAND solid-state drive for the data center. The launch could lead to increased sales for the company.
On February 24, 2022, AMD announced that its board of directors approved a new $8 billion share repurchase program. AMD Chair and CEO Dr. Lisa Su said, “With our strong financial performance, we are able to increase investments to drive long-term growth while returning additional value to our shareholders.”
Recent Financial Results
MU’s revenue increased 33.2% year-over-year to $7.69 billion for the fiscal first quarter ended December 2, 2021. The company’s non-GAAP operating income grew 180% year-over-year to $2.73 billion, while its non-GAAP net income increased 175.5% year-over-year to $2.47 billion. Also, its non-GAAP EPS came in at $2.16, up 176.9% year-over-year.
AMD’s revenues increased 49% year-over-year to $4.82 billion for its fiscal fourth quarter, which ended December 25, 2021. The company’s non-GAAP operating income grew 100% year-over-year to $1.33 billion, while its non-GAAP net income came in at $1.12 billion, representing a 76% year-over-year increase. And its non-GAAP EPS was $0.92, up 77% year-over-year.
Past and Expected Financial Performance
MU’s revenue has grown at a CAGR of 17.9% over the past five years. Analysts expect MU’s revenue to increase 17.3% in fiscal 2022 and 21.3% in fiscal 2023. The company’s EPS is expected to grow 50.7% in fiscal 2022 and 34.7% in fiscal 2023. Moreover, its EPS is expected to grow at a 25.2% rate per annum over the next five years.
In comparison, AMD’s revenue has grown at a CAGR of 30.6% over the past three years. The company’s revenue is expected to increase 54.3% in fiscal 2022 and 14% in fiscal 2023. Its EPS is expected to grow 43.7% in fiscal 2022 and 16% in fiscal 2023. Also, AMD’s EPS is expected to grow at a 29.9% rate per annum over the next five years.
Profitability
MU’s trailing-12-month revenue is 1.80 times what AMD generates. MU is also more profitable, with an EBITDA margin and net income margin of 50.61% and 24.86%, compared to AMD’s 24.67% and 19.24%, respectively.
However, AMD’s ROE, ROA, and ROTC of 47.43%, 21.33%, and 31.24% are higher than MU’s 17.16%, 9.34%, and 10.67%, respectively.
Valuation
In terms of forward non-GAAP P/E, AMD is currently trading at 29.72x, which is 247.6% higher than MU’s 8.55x. Furthermore, AMD’s 23.10x forward EV/EBITDA ratio is 411.1% higher than MU’s 4.52x.
So, MU is relatively affordable here.
POWR Ratings
MU has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. In comparison, AMD has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
MU has a B grade for Value, which is consistent with its 1.69x forward P/B, 67.1% lower than the 5.14x industry average. However, AMD has a C grade for Value, which is in sync with its 17.24x forward P/B, which is 235.5% higher than the 5.14x industry average.
Moreover, MU has a grade of B for Quality. This is justified given MU's 35.64% trailing-12-month CAPEX/Sales, 1,480.8% higher than the industry average of 2.25%. On the other hand, AMD has a Quality grade of C, in sync with its 1.83% trailing-12-month CAPEX/Sales, 18.8% lower than the industry average of 2.25%.
Of the 97 stocks in the A-rated Semiconductor & Wireless Chip industry, MU is ranked #2. In contrast, AMD is ranked #66.
Beyond what I have stated above, we have also rated the stocks for Sentiment, Momentum, Growth, and Stability. Click here to view all the MU ratings. Also, get all the AMD ratings here.
The Winner
The semiconductor industry is expected to proliferate with increasing government and private investments. And while both MU and AMD are expected to benefit, we think MU is a better investment because of its lower valuation and higher profit margin.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Semiconductor & Wireless Chip industry here.
AMD shares fell $0.04 (-0.03%) in after-hours trading Monday. Year-to-date, AMD has declined -16.44%, versus a -3.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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