Better Buy: Intel Corporation vs. Qualcomm

The two longtime chip leaders are moving in decidedly different directions.

Tim Brugger
Tim Brugger
Oct 31, 2017 at 5:14PM
Technology and Telecom

What a year it's been for both Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM). Unfortunately for Qualcomm, 2017 is best left in the rearview mirror. Last quarter, it settled a couple of its outstanding legal problems, but another fine was levied recently, adding to its mounting list of courtroom woes.

As for Intel, its latest earnings release confirmed what some of us had thought was inevitable: Its shift to cutting-edge new markets and the significant potential they offer is taking hold. But considering Intel's recent 10% jump in share price following its strong third quarter, it may be too late to board that train.

So which is the better buy, Intel or Qualcomm? The answer may not be as cut-and-dried as it seems.

A life-size bull and bear statues on a city sidewalk.

Image source: Getty Images.

The case for Qualcomm

The latest in the slew of lawsuits against Qualcomm alleging anti-competitive licensing fees was brought by Taiwan's Fair Trade Commission (TFTC). Qualcomm has vowed to fight the $773 million fine, particularly considering its somewhat-limited footprint in Taiwan.

The TFTC snafu follows the $940 million check Qualcomm wrote last quarter to settle its dispute with BlackBerry (NYSE:BB), along with a $927 million payment to a South Korea regulatory agency. Apple's (NASDAQ:AAPL) decision to withhold payments to its suppliers, who in turn are not paying Qualcomm, was largely responsible for the 11% drop in revenue to $5.4 billion last quarter, and will likely hurt again this period.

When you toss in similar anti-competitive claims from the U.S. Federal Trade Commission, Qualcomm stock does come with risk. But for value investors, the company is worth a look. Trading at just 14.4 times future earnings, Qualcomm's share price is well below its peer average, not to mention Qualcomm is a bargain by virtually every other metric.

Looking ahead, Qualcomm is tackling several multibillion-dollar market opportunities including augmented reality (AR), autonomous cars, artificial intelligence (AI), and the next stage in mobile communications: 5G. Qualcomm isn't suited for conservative investors, but for those willing to wait out the legal troubles, its beaten-down stock could soar once the smoke clears.

The case for Intel

This is beginning to sound like a broken record, but Intel once again achieved several all-time high financial results in the third quarter. Excluding the now-divested McAfee, Intel's $16.1 billion in revenue was a 6% jump year over year. Last quarter's results were even more impressive given that its PC unit's $8.9 billion was flat. Intel more than made up for its largest division's so-so revenue with strength in the key areas driving future growth.

Data center revenue rose 7% to $4.9 billion, Internet of Things (IoT) -- home to Intel's AI, drones, and smart cars -- soared 23% to $849 million. The memory and programmable solutions groups also performed admirably last quarter, increasing 37% and 10%, respectively.

Thanks to paring 10% off expenses combined with increased operating margins, Intel's $5.1 billion in operating income and whopping 36% increase in per-share earnings to $0.94 were both record highs.

The icing on Intel's third quarter was raising guidance for fiscal 2017, the third straight quarter it's upped its forecast. All the good tidings and subsequent stock price run-up could make Intel stock a rather expensive proposition, but it hasn't.

And the better buy is...

Despite the recent jump in share price, Intel is also priced well below its peers. Though its 2.4% dividend yield can't compare to Qualcomm's 4%, the road ahead looks awfully smooth. Both companies are tackling high-growth market opportunities and making significant progress in their respective efforts.

As attractive as Qualcomm's beaten-down share price looks, Intel is delivering on its transformation. And without a hurdle in sight, Intel gets the nod as the better buy.