Shares of Intel (INTC -1.01%) and Nvidia (NVDA -0.46%) have slipped in 2022 thanks to the broader stock market weakness caused by factors including a potential hike in interest rates by the Federal Reserve, surging inflation, and the ongoing crisis in Europe.
Chipmaker Nvidia has been the bigger loser of the two, with the stock down close to 18% this year. This is despite positive results in February, driven by strong demand for its graphics cards which have many uses including by personal computers, data centers, and workstations.
Meanwhile, Intel stock has been more resilient, losing 7% of its value compared to the NASDAQ-100 Technology Sector index's decline of 14% in 2022. The semiconductor giant, whose processors are used in computers, data centers, and even cars, held its ground amid mixed earnings results at the end of January.
But can Nvidia stock regain its mojo and grow in lockstep with its terrific growth? Or will Intel continue to hold an upper hand on account of its potential turnaround? Let's find out.
The case for Intel
Intel's cheap valuation has been a boon for investors in 2022. The stock is trading at 9.8 times trailing earnings and 2.5 times sales, which is lower than the five-year average earnings multiple of 13.8 and sales multiple of 3.2.
So, Intel stock is not overvalued as compared with other tech stocks. It is way cheaper than the NASDAQ-100's price-to-earnings ratio of 32. This explains why shares of Chipzilla haven't shed a lot of value amid the ongoing stock market correction that has led investors to shun richly valued tech companies.
Intel's cheap valuation and the fact that it sports a dividend yield of 3% seem to have played in the company's favor on the stock market. Intel raised its quarterly dividend by 5% in January this year. That may have attracted more investors toward Intel stock at a time when an increase in U.S. Treasury yields has made the latter more appealing from an investment perspective.
The valuation and the dividend, however, are not the only reasons why Intel has shown resilience this year. Chipzilla is gunning for a turnaround, and it recently revealed plans to accelerate growth in the long run. Intel expects its revenue to increase in the mid- to high-single digits in 2023 and 2024. By 2026, the company sees year-over-year growth increasing to a pace of 10% to 12%.
It won't be surprising to see Intel's revenue growth accelerate in the next few years as the company is looking to gain ground in the markets it dominates, while also entering new markets. Its 2021 launch of Alder Lake processors has allowed the company to gain share in the desktop processor market. According to Mercury Research, Intel controlled 83.8% of the desktop processor space at the end of 2021 as compared to 80.7% in the prior-year period.
Intel could keep grabbing mor market share as it upgrades its product lineup with the launch of the Raptor Lake chips this year that are expected to be 40% more powerful than the current processors. Meanwhile, the launch of the Meteor Lake processors in 2023, which will be based on a 7-nanometer manufacturing node, should help the chipmaker maintain its process advantage over rival AMD.
Intel also plans to ship 4 million discrete graphics cards this year, which would allow the company to cut its teeth in a new lucrative space that it expects to generate $10 billion in revenue by 2026 (compared to $1 billion this year.)
Intel is pulling the right strings to get its growth back on track, and that should translate to long-term growth. Intel has a lot going for it while the broader stock market is under pressure.
The case for Nvidia
Nvidia's rich valuation has led to a sharp decline in the company's stock price. Its stock is currently trading at 63 times trailing earnings and 23 times sales, which explains why investors have pressed the sell button despite solid growth in the company's revenue and earnings.
Image source: Getty Images.
However, the pace of Nvidia's growth justifies its rich valuation. The graphics specialist reported a 61% increase in revenue in fiscal 2022 to $26.9 billion, while adjusted net income shot up 79% over the prior year to $11.2 billion. This impressive pace of growth is here to stay as the gaming and data center businesses, which Nvidia dominates, have a lot of room for growth in the coming years.
At the same time, Nvidia is taking advantage of emerging tech trends such as the metaverse, which could unlock a massive growth opportunity for the chipmaker. Additionally, Nvidia's automotive business is set to step on the gas thanks to a solid pipeline of design wins and the growing adoption of its Drive platform.
Tata Motors Limited subsidiary Jaguar Land Rover has signed a multi-year partnership to use Nvidia's artificial intelligence (AI)-enabled Drive platform in its cars starting in 2025. All Land Rovers will be built using Nvidia's platform, which will enable several features such as automated driving and parking systems, and driver and occupant monitoring.
These growth drivers explain why analysts expect Nvidia's earnings to grow at an annual rate of 30% for the next five years. Its revenue is expected to increase nearly 50% from fiscal 2022 levels to more than $40 billion by next fiscal year, and such impressive growth could mean solid upside for investors.
The verdict
Nvidia is already growing at an impressive pace, while Intel is working on a turnaround. So, Nvidia is a proven performer that's recording impressive earnings and revenue growth quarter after quarter thanks to its dominant position in the lucrative graphics card market. But the problem for Nvidia is that it is still expensive despite pulling back in 2022.
Nvidia's earnings and sales multiples are way higher than the S&P 500's P/E ratio of 24 and the price-to-sales ratio of 2.9. This makes the stock susceptible to a broader market sell-off, as has been the case so far this year.
Intel, on the other hand, is way cheaper, pays a nice dividend, and is on track to regain its mojo. As such, Intel looks like the safer bet of these two tech giants right now even though Nvidia is growing at a much faster pace.
