Nvidia (NVDA 6.18%) and Qualcomm (QCOM 1.45%) have emerged as metaverse stocks, primarily on the hardware side. While each company has a slightly different niche, both make chips that will play key roles in powering the metaverse.
But how do these star players compare when it comes to finances? Understanding these dynamics could help investors choose between the two prominent metaverse stocks.
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How each company will play a role in the metaverse
Neither chipmaker is known exclusively as a metaverse company. Nvidia specializes in gaming chips that it has applied to various tech-based applications, including artificial intelligence (AI), virtual reality (VR), the internet of things (IoT), and other areas. Qualcomm primarily produces communication chipsets and plays a major role in driving the 5G upgrade cycle.
Both companies have been intentional about applying their technologies to the metaverse. Nvidia has embraced what it calls the "omniverse," a combination of 3D design and GPU-based (graphics processing unit) simulation. The company also develops digital twins, which are 3D renderings of facilities, networks, and other objects. Additionally, Nvidia chips will power a supercomputer owned by Meta Platforms (META 0.43%), which it has designed to power the metaverse.
Qualcomm envisions a metaverse that takes over many applications and tasks currently performed by smartphones. The company's Snapdragon XR2 Platform powers Meta's Oculus Quest 2 VR headsets. What's more, in January, Qualcomm announced a partnership with Microsoft (MSFT 1.82%) to "expand and accelerate the adoption of augmented reality (AR) in both the consumer and enterprise sector" through the development of custom AR chips, software integration, and cutting edge hardware. Qualcomm recently launched the $100 million Snapdragon Metaverse Fund to support extended reality (XR) developers and establish the "foundational technologies" that will make up the immersive digital world.
How the companies compare financially
Both metaverse-minded companies are in solid financial shape. In the most recent fiscal year, Nvidia grew revenue by 61% year over year to $26.9 billion. Operating expenses were up 27% compared to the year prior, from $5.9 billion in fiscal year 2021 to $7.4 billion in fiscal year 2022 (ended Jan. 30). But net income made up for increased expenses, surging 125% year or year to just under $9.8 billion.
Qualcomm's revenue of $35.9 billion amounted to 35% growth over the trailing 12 months (ending Dec. 26). Qualcomm's revenue increases aren't quite keeping up with Nvidia, but the smartphone chipmaker did post impressive earnings growth. Its net income increased 78% over the same period to $11.0 billion, primarily by keeping a lid on operating expense growth.
Despite similar profit growth levels, Nvidia's stock price nearly doubled over the last 12 months while Qualcomm is up by only 11%. Still, this has added to a massive difference in valuations. Nvidia sells for nearly 70 times earnings, well above Qualcomm's price-to-earnings (P/E) ratio of 17.
This difference may be tied to each company's business focus. Nvidia derived almost 86% of its revenue from gaming and data centers in 2021. Not only do these relate more closely to the metaverse, but Nvidia has stood out from its competition.
Conversely, Qualcomm earns more than half of its revenue from smartphone chipsets, and its more metaverse-related technologies do not yet make up a large percentage of revenue. Also, manufacturers need Qualcomm's Snapdragon chips to build 5G smartphones, a factor that will probably keep much of the emphasis on smartphones for the foreseeable future. However, this market power has always appeared tenuous as large competitors continue to attempt to mount market and legal challenges to its dominance. That factor may have soured some investors on the stock.
Nvidia or Qualcomm?
Both companies are likely to play critical roles in the metaverse. As for which stock to choose, Qualcomm looks like the safer bet. At 70 times earnings, Nvidia appears priced for perfection and may not repeat its previous 12-month performance.
Despite fears related to its smartphone chipset business, Qualcomm appears oversold and offers similar income growth for a fraction of the valuation. While it may not be too late to buy Nvidia stock, Qualcomm promises comparable growth at a considerably lower valuation.
