NVIDIA (NASDAQ:NVDA) shares have been very good to their owners lately. The chip designer's stock has gained a massive 70% over the last year, making up for years of unimpressive performance.
Intel (NASDAQ:INTC) has a darker tale to tell, looking back at a 9% loss in the last 52 weeks. The semiconductor giant recently canceled its next-generation mobile chip designs and is struggling to convince investors that the Altera buyout was $17 billion well spent.
So NVIDIA comes into this comparison with all of the market momentum, but Intel sure looks much less expensive by comparison. Which one of these stocks belongs in your portfolio today?
Let's find out.
By the numbers
In recent years, NVIDIA has grown a lot faster than Intel. It starts at the top, with outstanding revenue growth to the tune of 14% in the just-reported first quarter of 2017. The cash then trickled down NVIDIA's income statement to create a 46% earnings boost.
By contrast, Intel's sales only increased by 7% in the comparable period. Earnings per share increased by one measly penny, or 2.4%. And that's including contributions from the $16.7 billion acquisition of Altera, which contributed 2.6% of Intel's total revenue for the quarter.
So, NVIDIA wins the growth race, hands down.
But that's not the only way to slice this comparison. Intel's annual sales are more than 10 times the size of NVIDIA's, unlocking massive economies of scale. Intel takes easy gold medals in head-to-head comparisons of net margins or return on equity.
It's also the more affordable stock, and this contest isn't even close. Intel shares are trading for 12.7 times trailing earnings and 12.4 times free cash flows. NVIDIA's trailing P/E ratio stands at a nosebleed-inducing 32, and its price to FCF ratio has soared to 18.6.
In other words, investors are paying a premium for NVIDIA's tremendous growth and will expect the company to deliver more of the same. Either way, Intel still provides high-quality fundamentals the smaller rival just can't match.
Beyond the numbers
The numbers never tell the whole story, of course.
NVIDIA is changing before your very eyes. The former graphics-chip specialist now tailors its products to running data center number-crunching and embedded computing tasks. Gaming products, professional graphics, and system-builder graphics chips still account for 80% of NVIDIA's total sales, but that's down from 88% just five quarters ago.
This company is betting the farm on automotive and data center products. These are promising markets, but NVIDIA does not dominate either one. The automotive space is deeply fragmented, and NVIDIA isn't even among the top five semiconductor providers. And in the data center space, NVIDIA must contend with sector champion Intel. Intel's quarterly data center sales stand at $4 billion, versus NVIDIA's $143 million.
David, meet Goliath. NVIDIA investors are banking on the company gaining ground against larger and more established rivals. At the moment, the odds seem good, so NVIDIA shares are getting that coveted high-growth premium. Just don't forget that these gutsy bets come with plenty of risk, and those lofty valuation ratios won't stay sky-high if NVIDIA's ambitions are foiled.
Intel is the safer, more stable bet. Here, you are banking on the world's largest semiconductor company and its high-quality operations. The Altera buyout added some new wrinkles to Intel's business, and the company recently restructured in order to put more weight into the data center and Internet of Things markets.
Personally, I own Intel but not NVIDIA because I prefer that company's dominant market position and calmer risk/reward ratio (not to mention its much richer dividend yield). Your mileage may vary.