The semiconductor industry is central to technological advancement, playing a crucial role in various devices such as smartphones, computers, automotive systems, and Internet of Things (IoT) devices. This versatile utility ensures a positive long-term outlook and resilience in the face of short-term market fluctuations.
Given the promising industry backdrop, in this article, I have compared the fundamentals of semiconductor stocks QUALCOMM Incorporated (QCOM) and inTEST Corporation (INTT) to determine which one could be a better investment candidate.
Despite grappling with persistent challenges stemming from prevailing macroeconomic conditions and exerting short-term pressure on the sector, the semiconductor industry exhibits promising long-term growth potential. Gartner predicts a 10.9% decline in semiconductor revenue to $534.50 billion in 2023, followed by a 16.8% surge to $624.40 billion in 2024 as demand bounces back.
Furthermore, according to The Semiconductor Industry Association (SIA), despite a slight dip compared to last year, global semiconductor sales in September 2023 witnessed a 1.9% increase compared to August 2023. In addition, total worldwide semiconductor sales for the third quarter of 2023 reached $134.7 billion, reflecting a 6.3% increase from the second quarter of 2023.
“The long-term outlook for semiconductor demand remains strong, with chips enabling countless products the world depends on and giving rise to new, transformative technologies of the future,” said John Neuffer, SIA president and CEO.
On top of it, expanding applications across sectors like data processing, networking, consumer electronics, industrial, automotive, and more are set to drive semiconductor market growth in the near future. The semiconductor market is projected to grow at a CAGR of 13.1% by 2032.
Given the favorable long-term industry prospects, QCOM and INTT should benefit. However, QCOM has outperformed INTT in terms of price performance by surging 17.4% over the past month compared to INTT’s 1.6% gain during the same period.
In addition, over the past six months, QCOM’s shares have surged 13.3% to close the last trading session at $125, while INTT’s shares have plunged 40.1% during the same period to close the last trading session at $13.14.
Keeping all these factors in mind, let us delve deeper into the fundamentals of the featured Semiconductor & Wireless Chip stocks for a better perspective.
Recent Developments
On September 11, QCOM entered into an agreement with Apple Inc. (AAPL) to provide Snapdragon® 5G Modem-RF Systems for the release of smartphones in 2024, 2025, and 2026. This collaboration underscores QCOM’s consistent leadership in the realm of 5G technologies and products.
Conversely, On October 5, INTT announced the relocation of its electronic circuit and electric vehicle battery automated test equipment design, development, and manufacturing operations for inTEST Acculogic.
The move consolidates these operations into a new facility in Markham, Ontario, replacing the previous three locations. The new 25,000-square-foot space features advanced utility infrastructure and a modern office complex to enhance operational efficiencies and improve customer service.
Recent Financial Results
QCOM’s total revenues for the fiscal fourth quarter (ended on September 24, 2023) amounted to $8.63 billion, while the company’s net income and EPS came in at $1.49 billion and $1.44, respectively. Moreover, during the same period, QCOM’s total current assets amounted to $22.46 billion, up 8.4% compared to $20.72 billion as of September 25, 2022.
On the contrary, for the fiscal third quarter, which ended on September 30, 2023, INTT’s revenue increased marginally year-over-year to $32.66 million, while its net earnings came in at $2.97 million, up 17.5%. However, the company’s adjusted EPS for the same period remained flat year-over-year at $0.28.
Past and Expected Financial Performance
QCOM’s revenue grew at a CAGR of 15% over the past three years. The consensus revenue estimate of $9.48 billion for the fiscal first quarter ending December 2023 reflects a marginal rise year-over-year. Meanwhile, the consensus EPS estimate for the same period is $2.35.
Conversely, INTT’s revenue increased at a CAGR of 35.1% over the past three. Analysts expect INTT’s revenue for the fourth quarter (ending December 2023) to decline 10% year-over-year to $29.15 million. Meanwhile, its EPS for the current quarter is projected to come in at $0.14, declining 60.3% year-over-year.
Profitability
QCOM is more profitable, with a trailing-12-month net income margin of 20.19%, compared to INTT’s 9.12%. Additionally, QCOM’s trailing-12-month EBIT margin and levered FCF margin are 24.15% and 27.41%, respectively, compared to INTT’s EBIT margin of 10.94% and levered FCF margin of 10.13%.
Furthermore, QCOM’s 55.70% trailing-12-month gross profit margin is higher than INTT’s trailing-12-month gross profit margin of 46.62%
POWR Ratings
QCOM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, INTT has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. QCOM’s B grade for Sentiment aligns with its favorable analyst estimates for the to-be-reported quarter. On the other hand, INTT’s D grade for Sentiment is justified by its negative analyst estimates for the to-be-reported quarter.
Moreover, QCOM has a B grade for Quality, justified by its higher-than-industry profitability. QCOM’s trailing-12-month cash per share of $7.59 is 307.7% higher than the industry average of $1.86. Also, its trailing-12-month levered FCF margin of 27.41% is 237.6% higher than the industry average of 8.12%.
Conversely, INTT has a C grade for Quality, justified by its mixed profitability. The stock’s trailing-12-month asset turnover ratio of 1.07x is 73.2% higher than the industry average of 0.62x. However, its trailing-12-month CAPEX/Sales of 1.01% is 56.8% lower than the industry average of 2.33%.
Among the 92 stocks in the Semiconductor & Wireless Chip industry, QCOM is ranked #7, while INTT is ranked #20.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, and Stability. Click here to view QCOM’s ratings. Get all INTT ratings here.
The Winner
Despite short-term market fluctuations, the semiconductor industry’s long-term growth prospects remain bright, fueled by the persistent demand for more potent and energy-efficient chips. This sustained necessity underscores the enduring importance of the industry. Companies like QCOM and INTT are well-positioned to benefit within this dynamic landscape.
However, after examining the fundamentals of both stocks, QCOM emerges as a more compelling investment candidate, supported by its solid financial standing, robust profitability, and favorable analyst sentiment, especially when considering INTT’s relatively negative analyst sentiment and lower profitability.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.
What To Do Next?
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QCOM shares were trading at $128.65 per share on Wednesday afternoon, up $2.06 (+1.63%). Year-to-date, QCOM has gained 19.39%, versus a 20.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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