NVIDIA (NASDAQ:NVDA) and Analog Devices (NASDAQ:ADI) are as different as chalk and cheese. While NVIDIA has set the stock market on fire over the past few years thanks to the terrific demand for its graphics processing units (GPUs), Analog Devices has struggled to get even close to the graphics specialist.

ADI Chart

ADI data by YCharts.

However, Analog Devices' growth hasn't trailed NVIDIA's by that much, as evident from the chart. What's more, the company is targeting fast-growing markets such as automotive, industrial semiconductors, and consumer electronics to secure long-term growth, and it also pays a nice dividend. But does this make it a better bet than the GPU titan? Let's find out.

Man in suit standing in front of a chalkboard with many question marks written on it

Image source: Getty Images.

The case for Analog Devices

Analog Devices' growth has hit a higher gear in recent quarters after it completed the acquisition of Linear Technology in March of last year. The company's revenue shot up 54% year over year last quarter to $1.52 billion thanks to the acquisition. What's more, the current quarter's revenue guidance of $1.47 billion means that its top line could grow almost 22% year over year.

Of course, the growth will normalize over the next few quarters as the year-over-year comparisons smooth out once the gains from the Linear Technology acquisition are absorbed. But at the same time, investors shouldn't forget that Analog Devices is now in a stronger position to tap into lucrative markets such as automotive and industrial to grow the business.

Analog Devices claims that its total addressable market grew from $8 billion to $14 billion post-acquisition. For instance, the number of electric vehicles is expected to increase 10 times in the next five years, and this is expected to double the company's addressable market to $3 billion thanks to the growing demand for battery management systems (BMS) used in electric cars.

Analog Devices got access to the BMS market after acquiring Linear, and it now expects to make a big dent. It is estimated that BMS sales will increase 20% a year going forward. Analog Devices is well-positioned to tap this market, as it claims to deliver a 25-mile-plus increase in the driving range, over 10 years of battery life, and $500 worth of cost savings to the car maker.

On the other hand, the growing deployment of sensors in industrial applications will be yet another catalyst for the company. For instance, factories are adding more than 500,000 collaborative robots (also known as cobots) annually on top of traditional robots, which will expand the market for Analog Devices' sensors and Ethernet and wireless connectivity chips by two times.

In all, Analog Devices expects the factory automation market to create a $4 billion revenue opportunity by 2022. So, it can be concluded that Analog Devices is making moves in the right areas to power its growth in the long run.

The case for NVIDIA

Unlike Analog Devices, the market has taken note of NVIDIA's searing financial growth as it is pursuing opportunities in fashionable areas such as video gaming, cloud computing, and artificial intelligence. The company's leadership in the discrete GPU market, where it holds a share of 66% according to Jon Peddie Research, has helped it expand its empire across several industries and has set it on its way to take advantage of fast-growing tech trends.

For instance, NVIDIA's video gaming revenue increased 29% year over year last quarter, and it played a big part in the company's overall growth, as it accounts for almost 60% of total revenue. Looking ahead, demand for discrete GPUs will keep increasing thanks to the evolution of video gaming technology.

As it turns out, 54% of PCs came with discrete graphics during the last quarter of 2017, an increase of 15.8% from the prior-year quarter. The reason why gamers are buying more discrete GPUs is that video games now need more powerful chips to run properly. For instance, AAA games developed with extremely high budgets carry rich graphics that cannot run on integrated graphics cards, and this is where NVIDIA's specialized GPUs come into play.

Newzoo estimates that the global PC gaming market was worth $31 billion last year, and it could grow to almost $35 billion by the end of the decade. This indicates that demand for NVIDIA's GPUs will remain strong.

But one of the major reasons NVIDIA's shares have simply taken off over the past few years is because of its interest in emerging tech trends such as artificial intelligence (AI). NVIDIA's GPUs are well-suited to train AI models, as they are capable of carrying out millions of mathematical calculations simultaneously because they are equipped with thousands of cores.

As such, NVIDIA has become the go-to provider of AI chips for companies ranging from Audi to Amazon and Microsoft. Looking ahead, the AI chip market is expected to clock an annual growth rate of 50% through 2023, hitting over $11 billion in revenue and presenting yet another sizable opportunity for NVIDIA.

The verdict

NVIDIA and Analog Devices are going after lucrative markets to secure long-term growth. NVIDIA is the more popular pick based on Wall Street sentiment. But Analog Devices is cheaper than NVIDIA from a valuation perspective.

ADI PE Ratio (TTM) Chart

ADI PE Ratio (TTM) data by YCharts.

Analog Devices is slightly cheaper than NVIDIA as far as the trailing price-to-earnings (P/E) ratio is concerned. But the gap widens on a forward earnings basis, making Analog Devices the way better pick. What's more, it carries a decent dividend yield of 2.13% as compared to NVIDIA's paltry payout of just 0.25%.

Analog has raised its dividend 15 times in the last 14 years, so it has a strong dividend-paying history. As such, Analog Devices looks like the better bet for income-oriented investors. But for investors willing to pay up, NVIDIA could be the stock of choice, as it looks well-placed to sustain its terrific growth given the catalysts it has.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.