Many semiconductor companies were great investments over the last decade, as megatrends like smartphones and content streaming drove demand and prices higher. NVIDIA (NASDAQ:NVDA) is a great example of a semiconductor winner, up around 1,100% just since January 2015. Qualcomm (NASDAQ:QCOM), on the other hand, has underperformed the S&P 500 over the same timespan, although when accounting for dividends, shares are still up around 60%.

Past performance can provide context, but now our attention must shift toward the future: Will NVIDIA or Qualcomm be the better stock to buy today? 

Two hands hold a red apple and a green apple for comparison.

Image source: Getty Images.

Can it be Qualcomm?

Qualcomm was important in the mobile revolution, with its chips enabling device connectivity worldwide. It profited from chips and by requiring manufacturers to sign licensing agreements, which generated steady royalty revenue. In fiscal 2019 (ended Sept. 29, 2019), Qualcomm's licensing accounted for 19% of total revenue (excluding a one-time settlement) but was very profitable with nearly $3 billion in earnings before taxes (EBT) -- 54% of total EBT. 

But the future is cloudy for the company's licensing segment. The Federal Trade Commission filed a lawsuit, which led to a federal judge ruling (among other things) that Qualcomm can't enter into exclusive supply agreements and can't withhold its chips from companies that haven't signed a licensing agreement. 

The ruling is being appealed, so it's possible that it is overturned and Qualcomm returns to business as usual. That would be the best-case scenario for its investors. But even if the ruling is upheld and licensing revenue gets hit, the company's chips will likely continue being the chips of choice. And they could get a new use case as 5G networks make connected cars more common.

So even though Qualcomm's licensing segment is threatened, the rest of the business could still see robust demand.

How about NVIDIA? 

Autonomous driving and artificial intelligence (AI) get most of the attention from NVIDIA's investors, but over half of its revenue is currently generated from video gaming. In the third quarter of fiscal 2020, gaming revenue came in at $1.66 billion. That's down 6% year over year, but it has risen sequentially for three straight quarters, showing that this segment remains strong.

Gaming revenue growth has slowed for NVIDIA, but its data center business should improve. Data centers are increasingly needed as our world generates record amounts of data, and there are several ways to invest in the trend. There are data center REITs (real estate investment trusts), and data center software companies. But NVIDIA looks to benefit from data centers more on the hardware side.

In Q3, overall data center revenue was down 8% year over year to $726 million. That doesn't sound great, but it might be missing a hidden trend, since not everything in this segment is trending downward. Specifically, NVIDIA's T4 GPU was released in late 2018, and shipments reached record levels in Q3 2020. Both Alphabet's Google and Amazon already use the T4 for their cloud infrastructure, and are buying more. 

NVIDIA has its own AI cloud offering called NGC. But that's not the only way the company can win in AI. With record shipments of T4 GPUs, even if NGC doesn't win the AI cloud wars, NVIDIA may still supply the hardware to the AI cloud that does.

The better buy today

The Ninth Circuit Court of Appeals is set to hear Qualcomm's appeal of the FTC lawsuit on Feb. 13, 2020, with a ruling coming sometime thereafter. Even though the stock trades at only 16 times forward earnings, it still faces downside risk if the previous court ruling is upheld. That would change the company's licensing model and take a significant portion of profits with it. This uncertainty keeps me on the sideline.

NVIDIA stock surely isn't high on value investors' lists, since it currently trades around 64 times trailing earnings, and 34 times forward earnings. In addition to what we covered, the market seems to value the stock based on its positioning to capture upside in autonomous driving and maybe even a resurgence in cryptocurrency mining (something that drove NVIDIA's revenue in times past). But it's fair to consider that these trends may still take some time to develop, and NVIDIA isn't guaranteed to be one of the big winners when they do. In fact, many semiconductor companies are jockeying for position in these future trends.

Investors should also remember that NVIDIA should close on its acquisition of Mellanox Technologies (NASDAQ:MLNX) this year. The acquisition bolsters NVIDIA's data center offerings and isn't factored into guidance even though it's expected to be immediately accretive to earnings. So perhaps NVIDIA isn't as expensive as it looks at first glance. Given its steady gaming revenue, data center growth, accretive Mellanox earnings, and opportunity for more upside from emerging trends, I'd say NVIDIA is the better stock and worth buying today.