One Chip Stock to Buy Not Named Nvidia

 One share of the chip to buy an unnamed Nvidia

So far, the semiconductor industry has been off to a scorching hot start in 2023. Nvidia and Advanced Micro Devices, in particular, have helped fuel the chip industry in large part through developments in artificial intelligence (AI).

However, there is another semiconductor company that I believe is being overlooked in the midst of Nvidia's pursuit of the $1 trillion club. Qualcomm (NASDAQ: QCOM ) recently reported earnings for its fiscal third quarter, which ended June 25. While the results may seem somewhat muted at first, there is more to the story. At first glance, Qualcomm's latest financial report looks chaotic. For the quarter ended June 25, the company reported revenue of $8.5 billion, down 23% from a year earlier. The bottom line was even worse, as net income and earnings per share fell more than 50% year over year.

Some investors may want to close the door and walk away, but it's important to remember that there are often two sides to every story. During Qualcomm's second-quarter earnings call, the company signaled a revenue estimate in the range of $8.1 billion to $8.9 billion for the third quarter. As seen above, Qualcomm's most recently reported revenue fell right in the middle of its outlook. While it would have been nice to see the company report closer to the high end of its outlook, it still managed to beat Wall Street expectations for the bottom line while narrowly missing consensus revenue estimates.As the above financials are mixed, investors may be wondering if there are fundamental issues in Qualcomm's business specifically, or if the results are consistent with larger macro headwinds for the semiconductor industry as a whole.

Is the company in trouble?

The biggest laggards in Qualcomm's fiscal third quarter were mobile phones and Internet of Things (IoT) products, which fell 25% and 24%, respectively. Management tried to curb any further investor pessimism by saying it believes handset units will be lower in the high single-digit percentage range compared to calendar 2022. The reason for the decline is broader macro trends as well as a slower recovery in China.

While not encouraging, it also doesn't deserve an overreaction. The Federal Reserve is currently grappling with some complex challenges related to the macroeconomic environment, namely high inflation. These issues will not be resolved overnight, and investors should be patient as both consumer and business spending normalize. On the other hand, Qualcomm seems to have some catalysts on the IoT front. The company recently announced a partnership with Meta, where the social media giant's newly announced virtual reality headset will be powered by Qualcomm technology. In addition, Qualcomm is also helping Meta with its Large Language Model (LLM).

Given how seriously Big Tech is investing in generative AI applications, Meta's collaboration with Qualcomm shouldn't be underestimated. While it's difficult to predict or anticipate the impact of this partnership, at the very least it appears to be an early endorsement of Qualcomm's AI capabilities, which is encouraging.

Is the stock a buy?

When it comes to valuation, I like to analyze several different multiples. Qualcomm currently trades at a forward price-to-earnings (P/E) ratio of 12.6 and a price-to-sales (P/S) ratio of 3.5. For comparison, let's look at the same multiples among some peers: Investors can see that Qualcomm is trading at steep discounts to its peers. And while its financial results aren't exactly cause for celebration, the chart above shows just how much investors have punished the stock. So far in 2023, Qualcomm shares have returned about 10%, significantly underperforming the S&P 500, not even in the same universe as its competitors.

While Nvidia and Advanced Micro Devices appear to be the industry leaders, my view is that the semiconductor space will not be dominated by just two companies in the long term. Like its competition, Qualcomm has plenty of catalysts that should propel the business forward.

Although the company has a long way to go, the stock appears to be oversold and investors seem to be in love with Nvidia and others. Because of this, now could be an interesting time to start dollar cost averaging into Qualcomm stock. If anything, it can help round out and serve as a hedge against any portfolio allocation you may have to other chip stocks or AI investments.When our team of analysts has a stock tip, it can pay to listen. After all, the newsletter they've been running for over a decade, the Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Qualcomm wasn't one of them! That's right - he thinks these 10 stocks are an even better buy. Randi Zuckerberg, Facebook's former director of market development and spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Adam Spatacco has positions in Meta Platforms and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Nvidia, Qorvo, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

In the dynamic world of technology investment, Nvidia has long been in the spotlight as one of the leading chip manufacturers. However, there is another player in the semiconductor industry that is quietly making waves and is positioned for impressive growth. In this article, we'll introduce you to this hidden gem and reveal why it's a chip stock worth considering for your investment portfolio.

Rising star: AMD (Advanced Micro Devices)

While Nvidia was the darling of the tech sector, AMD was establishing itself as a strong competitor. Known for its innovative processors and graphics solutions, AMD has managed to gain significant market share, especially in the gaming and data center segments. As demand for high-performance computing continues to rise, AMD is well-positioned to capitalize on these trends. Diversified product portfolio: AMD has a comprehensive range of products that cover different markets. From gaming enthusiasts looking for high-end graphics cards to data centers demanding powerful processors, AMD has solutions to meet a variety of customer needs.

Innovation: AMD's focus on innovation has propelled it forward. Their processors have been celebrated for their impressive performance and are constantly pushing the boundaries of what is possible in semiconductors.Strong financial results: AMD has demonstrated robust financial performance in recent years. Their revenue growth has been remarkable and they have managed to increase their market share, giving investors confidence in their ability to continue to grow.

Partnerships: AMD secures strategic partnerships with key players in the technology industry, cementing its position as a reliable supplier for a variety of technology needs. As with any investment, it is key to do your research and consider the potential risks. While AMD has shown promising growth, it is essential to stay informed about industry trends, competition and overall market conditions. 

In conclusion, while Nvidia continues to shine in the chipmaking sector, AMD has emerged as a strong contender that should not be overlooked. With its diversified product portfolio, commitment to innovation, strong financial capabilities and strategic partnerships, AMD is poised for a bright future. As always, before making any investment decision, be sure to do your due diligence and consult with financial professionals to align your investment strategy with your financial goals.