NVIDIA (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM) are established tech giants positioning themselves for prosperity in the new economy. Both appear to have successfully redefined themselves to do well in today's tech industry.

However, investors should not assume that these two companies are going to thrive equally. Both companies compete in separate parts of the tech industry and contend with differing competitive conditions.

Let's take a closer look at both NVIDIA and Qualcomm to see which might make a more lucrative investment given the competitive environment each operates in.

Engineer in protective suit, looking at a microchip as he holds it up.

Image source: Getty Images.

The opportunities ahead

Despite each being generally designated as semiconductor stocks, the two companies have little in common. NVIDIA drew its picture of success by manufacturing graphics processing units (GPUs), while Qualcomm excels by specializing in chips for smartphones.

NVIDIA has come a long way from the days when it provided GPUs primarily to enhance gaming capabilities in PCs. The company has since applied its strengths to provide chips for artificial intelligence (AI), virtual reality (VR), and other applications. Thanks to the ray-tracing technology NVIDIA introduced in 2018, it has become a leader in numerous areas such as supercomputing, robotics, and self-driving cars.

However, it has also attracted a formidable competitor in Advanced Micro Devices (NASDAQ:AMD). AMD formed a Radeon Technologies Group division in 2015. In time, AMD's new division helped it begin to gain market share. NVIDIA has managed to fight back, and it should remain the market leader for the foreseeable future. Nonetheless, NVIDIA will face continuous competitive pressures in this market.

This is not the case with Qualcomm, which connects with customers and investors through its smartphone chipsets. This has made manufacturers such as Apple and Samsung dependent on its technology. It has also attracted lawsuits from Apple and antitrust suits from the government.

With the onset of 5G networking, conditions have turned in Qualcomm's favor. The company got the ruling that it was a "monopoly" overturned, paving the way for 5G phone sales. Moreover, Apple settled its lawsuits with Qualcomm, though it also bought Intel's smartphone chipset business. This means Qualcomm could face competition in the future.

The stocks compared

During 2020, NVIDIA has delivered a stronger performance by far between the two companies. Their stock prices paralleled each other at the beginning of the year, but NVIDIA's stock price has experienced significantly higher growth than Qualcomm since February.

QCOM Chart

QCOM data by YCharts

However, NVIDIA investors must also pay a higher premium to buy the stock. At a forward P/E ratio of more than 50, its stock price comes in far ahead of the 21 forward multiple of Qualcomm.

In fairness, new NVIDIA investors will buy a great deal of growth. Analysts project earnings will grow by 57% this year. Also, in the most recent quarter, non-GAAP earnings increased by 76% from year-ago levels.

Still, reaction to COVID-19 and the demands it created may have driven much of that growth as millions found themselves needing to work from home. The pandemic will run its course at some point. Consequently, analysts project NVIDIA's earnings growth will be reduced to 21% year over year in the upcoming fiscal year.

The story is different for Qualcomm, as non-GAAP earnings rose by 8% from year-ago levels in its most recent quarter. This is similar to forecasts for the current year, as analysts predict an 11% year-over-year profit increase.

Nonetheless, with the release of the 5G iPhone from Apple, Qualcomm appears positioned to benefit from a multiyear upgrade cycle. For next year, projections point to a 65% increase in net income. Moreover, Grand View Research forecasts a compound annual growth rate for smartphone chipsets of 63% through 2027. This indicates Qualcomm's massive growth can continue for a long time to come.

NVIDIA or Qualcomm?

NVIDIA stock has recently outperformed Qualcomm and should deliver outsized returns for years to come. However, investors have to look to the future. With the massive profit increases that will probably come from the 5G upgrade cycle, Qualcomm is the stock more likely to deliver higher returns going forward.

The uptrend should continue for several years as smartphone users upgrade to 5G. Additionally, prospective shareholders who buy now can acquire Qualcomm stock at a significant discount to NVIDIA's current valuation.

Investors should profit regardless of which stock they choose. Nonetheless, Qualcomm's low cost and 5G market dominance is a value proposition with too much potential to ignore.