Broadcom versus advanced micro-devices
Broadcom Inc. (AVGO) in San Jose, California, designs, develops and delivers semiconductor infrastructure software solutions. It operates through two segments, Semiconductor Solutions; and Infrastructure Software. In comparison, Advanced Micro Devices, Inc. (AMD) in Santa Clara, California, operates as a worldwide semiconductor company. The Company operates in two segments, Computing and Graphics; and enterprise, integrated and semi-custom.
The global shortage of semiconductors aggravated by the rise Cases of COVID-19 in China and the Russia–Ukraine War seriously impacted the automotive and consumer electronics Industries. However, robust demand has allowed companies to raise prices for their chips and generate substantial profits. Otherwise, rising government and private investment to address the supply crisis should help the industry grow significantly in the coming months. According to BlueWeave Consulting, the global semiconductor market is estimated at growing at a CAGR of 5.2% between 2022 and 2028. Therefore, AVGO and AMD should benefit.
AMD stock has gained 26.1% in price over the past year, while AVGO has returned 19.6%. However, AVGO’s 0.7% gains over the past six months compare to AMD’s negative returns. And AVGO is the clear winner with gains of 13.4% over AMD’s negative returns in terms of performance over the past nine months.
But which of these two stocks is a better buy now? Let’s find out.
On April 12, 2022, AVGO announced an agreement to acquire all of the outstanding shares of VMware, Inc. (vmw) in a $61 billion cash and stock deal. Hock Tan, President and CEO of AVGO, said, “Building on our proven track record of successful mergers and acquisitions, this transaction combines our leading semiconductor and infrastructure software businesses with a an iconic pioneer and innovator in enterprise software as we reimagine what we can offer customers. as a leading infrastructure technology company.
On May 26, 2022, AMD announced that it had acquired Pensando Systems in a transaction valued at approximately $1.90 billion. AMD President and CEO Dr. Lisa Su said, “The data center remains one of the biggest growth opportunities for AMD. The addition of the Pensando Systems team with its hardware and software portfolio will enable us to offer cloud, enterprise and edge customers a broader portfolio of cutting-edge compute engines that can be optimized for their workloads. specific work.
Recent financial results
AVGO’s revenue increased 16% year-on-year to $8.10 billion for its fiscal second quarter, ended May 1, 2022. The company’s adjusted EBITDA increased 29.1% year-on-year to $5.11 billion, while its non-GAAP net income came in at $4 billion, representing a 34.2% year-over-year increase. Additionally, its non-GAAP EPS was $9.07, up 37% year-over-year.
AMD’s revenue grew 71% year-over-year to $5.89 billion for its fiscal first quarter, which ended March 26, 2022. The company’s non-GAAP operating profit increased 141% year-on-year to $1.84 billion, while GAAP net income was $1.59 billion, representing a 148% year-over-year increase . And its non-GAAP EPS was $1.13, up 117% year-over-year.
Past and expected financial performance
AVGO’s revenue and EPS grew at CAGRs of 10.2% and 39%, respectively, over the past three years. Analysts expect AVGO’s revenue to grow 17.9% in its fiscal 2022 and 6.2% in fiscal 2023. The company’s EPS is expected to rise 28.9 % in fiscal 2022 and 8.4% in fiscal 2023. And its EPS is expected to grow at a rate of 14.7% per year over the next five years.
By comparison, AMD’s revenue and EPS grew at CAGRs of 45.7% and 120.4%, respectively, over the past three years. The company’s revenue is expected to increase 60.5% in its fiscal year 2022 and 14.2% in fiscal year 2023. Its EPS is expected to increase by 57.7% in fiscal year 2022 and by 13.6% in fiscal 2023. In addition, AMD’s EPS is expected to increase by 32.8%. annual rate over the next five years.
AVGO’s revenue over the last 12 months is 1.51 times greater than that generated by AMD. AVGO is also more profitable, with a gross profit margin and net profit margin of 74.48% and 27.47%, respectively, compared to AMD’s 49.51% and 17.98%.
Additionally, AVGO 33.32%, 9.59% and 9.62% respectively DEERROA and ROTC are higher than AMD’s 10.98%, 6.39% and 7.63%.
Note that AVGO is one of the few stocks hand-picked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
In non-GAAP forward P/E terms, AMD is currently trading at 21.08x, 40.8% higher than AVGO’s 14.97x. Additionally, AMD’s forward EV/EBITDA ratio of 16.87x is 37.7% higher than AVGO’s 12.25x.
Thus, AVGO is relatively affordable here.
AVGO has an overall A rating, which equates to a strong buy in our own POWR Rankings system. In contrast, AMD has an overall rating of C, which translates to Neutral. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
AVGO has an A rating for growth, which is in line with analysts’ expectations that its EPS and revenue will grow significantly. In comparison, AMD has a B rating for growth.
Additionally, AVGO has an A rating for quality. This is justified given AVGO’s gross profit margin of 74.48% over the last 12 months, which is 48.1% above the industry average of 50.29%. In comparison, AMD has a quality rating of C, which is in line with its gross profit margin of 49.51% over the last 12 months, which is below the industry average of 50.29%.
Among 95 B-rated stocks Semiconductor and wireless chip industry, AVGO is ranked #7. By comparison, AMD is ranked #79.
Beyond what I said above, we also rated stocks for Sentiment, Value, Momentum and Stability. Click here to view all AVGO ratings. Also get all AMD ratings here.
Click here to view our Semiconductor Industry Report for 2022
The semiconductor industry is expected to continue growing with advancements in artificial intelligence (AI), Internet of Things (IoT), and 5G connectivity. And while both AVGO and AMD should benefit, we think it’s better to bet on AVGO now due to its lower valuation and higher profit margin.
Our research shows that the odds of success increase when investing in stocks with an overall buy or strong buy rating. See All Other Top Rated Semiconductor & Wireless Chip Industry Stocks here.
AVGO shares were trading at $577.25 per share on Friday afternoon, up $26.59 (+4.83%). Year-to-date, AVGO is down -12.66%, compared to a -12.88% rise in the benchmark S&P 500 over the same period.
About the Author: Nimesh Jaiswal
At Nimesh Jaiswal a fervent interest in the analysis and interpretation of financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving the price of a stock is the key approach he follows while advising investors in his articles. After…