Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Better Buy: NXP Semiconductors vs. NVIDIA

By Anders Bylund - Dec 20, 2018 at 10:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of these stocks is falling for good reason and the other really deserves better.

NXP Semiconductors ( NXPI -0.16% ) recently saw a huge merger with Qualcomm ( QCOM -2.73% ) fall apart at the finish line. NVIDIA ( NVDA -3.80% ) rode the cryptocurrency markets to all-time highs last year, only to slide back down when surging cryptocoin prices plunged. Both stocks trade more than 30% lower in 2018. The two companies also have high hopes in the exciting market for automotive computing solutions.

So NXP and NVIDIA have a lot in common, but the truth is in the details. Which stock would serve your own portfolio better right now?

Let's have a look.

By the numbers

Metric

NXP

NVIDIA

Revenue (TTM)

$9.5 billion

$12.4 billion

EBITDA profits (TTM)

$4.7 billion

$5.0 billion

Free cash flows (TTM)

$3.7 billion

$3.4 billion

Market cap

$25 billion

$86 billion

Data from SEC filings and Finviz.com, current as of Dec. 19, 2018. TTM = trailing 12 months.

The figures above aren't exactly an apples-to-apples comparison. NXP pocketed a $2 billion breakup fee from Qualcomm in the third quarter, a truly unique one-time item that doubled the company's profits for that period.

That being said, NVIDIA is clearly the higher-flying market darling here. The graphics chip specialist's shares are trading at 28 times free cash flows and seven times  NVIDIA's annual sales. You can pick up NXP shares at the far lower price of 13 times trailing free cash flows or 2.7 times sales.

Two fencers facing off against each other in a dark room.

Image source: Getty Images.

What's the story?

Both of these stocks stand at the bottom of a raging roller coaster. But one of these drops is not like the other.

NVIDIA has been running a two-horse race for years, battling Advanced Micro Devices ( AMD -5.85% ) for supremacy in the field of computer graphics accelerators. In recent years, it turned out that the same chips are pretty good at mining certain types of cryptocurrencies. So when the crypto market soared sky-high in 2017, AMD's and NVIDIA's graphics chips were in high demand.

That artificial demand bubble popped in 2018 and all of the major cryptocurrencies are trading dramatically lower. That makes it hard for crypto enthusiasts (and professionals) to turn a profit from their crypto mining activities, accounting for the cost of number-crunching hardware and the electric power needed to keep everything running.

NVIDIA's management tried to play this off as a minor inconvenience at first, and so did AMD. But the sudden loss of product demand slowed down their skyrocketing revenue and cash profits, and share prices quickly followed suit.

NVIDIA bulls argue that this slowdown is temporary and the company is sure to get back on its high-growth feet again. Me, I'm not so sure. It seems to me that NVIDIA still can fall a long way before hitting rock bottom, and this company has a long history of inconsistent execution.

NXP, on the other hand, remains a leader in the emerging field of automotive computing where NVIDIA is a mere newcomer. This company offers a far less volatile and more predictable long-term growth trajectory than NVIDIA ever did. And the stock is still dirt cheap on the heels of Qualcomm's failed buyout, which is a curious reaction to NXP's continued existence as a stand-alone business with an extra $2 billion in cash reserves under its belt.

I'm so convinced of NXP's great value proposition here that I recently started a real-money position in the stock. You won't find me doing the same for NVIDIA anytime soon.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NXP Semiconductors N.V. Stock Quote
NXP Semiconductors N.V.
NXPI
$223.00 (-0.16%) $0.36
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$149.11 (-5.85%) $-9.26
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$175.63 (-2.73%) $-4.93
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$314.35 (-3.80%) $-12.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.