What happened
Shares of Nvidia (NVDA +2.57%) jumped out of the gate Monday and were up 3.5% as of 9:55 a.m. ET.
The popular semiconductor stock appears to be responding to a positive prognosis for the global semiconductor industry published by the research firm Gartner. As Livemint.com reported this morning, preliminary results from Gartner show that "worldwide semiconductor revenue increased 25.1% in 2021 to total $583.5 billion, crossing the $500 billion threshold for the first time."
Image source: Getty Images.
So what
Gartner noted that the rising price of semiconductors comes primarily from two factors -- one positive and one negative for chipmakers' stocks.
On the plus side, there's the ongoing global semiconductor shortage that could last into 2024, and that's causing prices to rise as demand grows in the absence of adequate supply. On the minus side, though, Gartner notes that price increases for logistics and raw materials are raising semiconductor companies' cost of doing business, and that they're passing these costs along to their customers.
As both these trends run their course, Gartner projects that global chip sales will grow another 9% to $636 billion this year, then grow to $692.5 billion by 2025, and eventually top $1 trillion in 2030. According to The Wall Street Journal, Samsung Electronics agrees with this prognosis that "the good times would continue," as does Intel (INTC +1.05%), where CEO Pat Gelsinger says "2022 will only be better" than 2021.
Now what
Gartner noted that Samsung Electronics is now the No. 1 semiconductor company in terms of revenue, followed by Intel.
With a market capitalization higher than either of those two companies (Nvidia is nearly three times the size of Intel in terms of market cap ), you might think that Nvidia would be at least No. 3 in this revenue race, but that's not so. According to data from S&P Global Market Intelligence, Nvidia's $24.3 billion in trailing-12-month revenue is less than a third of the $79 billion that Intel raked in last year.
This disconnect between sales strength and stock valuation suggests Nvidia stock could be vulnerable to a downfall if -- as the Journal points out has happened in the past -- "customers sometimes overorder and then pause buying, leading to an oversupply of chips," causing prices to crash. If that happens, Intel stock at 10 times earnings will look like a much safer bet than Nvidia stock at 70 times earnings.
