Semiconductor stocks have been under the spotlight in the past year as industries across different sectors including automotive, gaming, and electronics faced semiconductor shortages.
However, these shortages seem to be easing up as semiconductor companies scale up their production to meet strong demand.
When it comes to the automotive market, an IHS Markit report estimates that the market for automotive semiconductors could be worth $67.6 billion globally by 2026, indicating a compounded annual growth rate (CAGR) of 7% between 2019 and 2026.
Let’s compare two semiconductor stocks, NXP Semiconductors and Qorvo, using the TipRanks stock comparison tool, and examine what Wall Street analysts are saying about these stocks.
NXP Semiconductors N.V. (NASDAQ: NXPI)
NXP Semiconductors is a Dutch semiconductor company headquartered in Eindhoven, the Netherlands, that provides a wide array of semiconductor products including microcontrollers, application processors, and communication processors.
The company’s key end markets include automotive, mobile, communication, and infrastructure, as well as industrial and Internet of Things (IoT).
NXP announced Q4 results on Monday with a record FY21 revenues of $11.1 billion, up 28% year-over-year as demand was on an upswing across all its end markets all through the year. Even in 2022, NXP continues to anticipate strong demand for its products.
Kurt Sievers, NXP’s President, and CEO commented that demand continues to be strong from its customers. Thus, the company anticipates that “2022 will be another year of demand/supply imbalance with lead times extending out across almost the entire portfolio and the level and intensity of supply related escalation conversations with our customers remains elevated.”
As a result, in 2022, the company anticipates revenues to increase to “near the high end of our 8% to 12% long-term growth target.”
When it comes to the fourth quarter, NXP’s revenues soared 21.2% year-over-year to $3.04 billion with a non-GAAP gross margin of 57.3%.
What’s more, in a move that brought cheer to its investors, NXP also raised its quarterly cash dividend by 50% to $0.845 per ordinary share. It will be paid in cash on April 6 to shareholders of record as of March 15. In addition, the company will also repurchase shares worth $2 billion this year.
Even in Q1, the company estimates revenues to rise by another 21% year-over-year to $3.1 billion or to grow in the range of 18% to 24% year-over-year. NXP anticipates this growth in revenues to be largely driven by demand from the industrial, IoT, and automotive sectors.
Mizuho Securities analyst Vijay Rakesh, while approving of this strong demand from NXP’s end markets, did see this demand “offset by limited GM [gross margin] leverage.”
That’s because COVID-19 pandemic has resulted in semiconductor supply chain shortages, resulting in rising costs for NXP. However, the analyst still thinks that NXP’s gross margin could improve as “constraints subside.”
Moreover, the analyst believes that NXP’s competitors, ON Semiconductor (ON) and Allegro Microsoystems (ALGM), have the potential to drive a further gross margin upside, ranging between 150 basis points and 300 basis points, compared to NXP’s limited gross margin.
As a result, while the analyst raised the price target from $222 to $225 (8.1% upside), he remained sidelined with a Hold rating on the stock.
Other Wall Street analysts are cautiously optimistic with a Moderate Buy consensus rating based on 11 Buys, 6 Holds, and 1 Sell. The average NXP Semiconductor stock prediction of $245 implies upside potential of approximately 17.7% to current levels for this stock.
Qorvo (NASDAQ: QRVO)
Qorvo is a semiconductor company that designs, supplies, and manufactures radio frequency (RF), system-on-a-chip (SoC), power management, Wi-Fi, and cellular solutions. The company has two business segments: Mobile Products (MP) and Infrastructure and Defense Products (IDP).
Qorvo is expected to announce its Fiscal Q3 results today.
Mark Murphy, CFO of Qorvo had commented post-the company’s Fiscal Q2 results that the company expects “December quarter revenue to decrease sequentially amidst ongoing supply challenges and other factors impacting global smartphone demand. In the March quarter, we expect these challenges to moderate. We expect our full fiscal year 2022 to grow 15% and to deliver gross margin over 52%.”
The company anticipates revenues to range between $1.09 billion and $1.12 billion in Fiscal Q3 while non-GAAP gross margin is expected to vary from 52% to 52.5%.
This skepticism is also reflected in the stock as it has slid 12.8% in the past month. But is this skepticism warranted?
Wells Fargo analyst Gary Mobley believes that Qorvo’s shares could rally, with a slight earnings beat for the December quarter and an in-line outlook for the March quarter.
Mobley’s optimism stems from the fact that Apple (AAPL) seems to be resolving the supply chain issues that had limited iPhone production, and smartphone sales in China have improved in recent months.
It is important here to note that Apple is one of Qorvo’s largest end customers and accounted for 30% of the company’s revenues in FY21.
Moreover, the analyst stated that Apple’s improvement in iPhone supply or production could add more upside to Qorvo’s revenues. Mobley added that investors did not seem to have priced in the “longevity and significance of the 5G mobile handset product cycle,” as he estimates that 5G penetration was at only 35% last year and 800 million 5G mobile handset units could be produced this year.
Qorvo has a range of 5G mobile products and solutions including 5G base station products and Wi-Fi products.
Mobley added, “As the 5G product cycle helps drive outsized growth for QRVO in CY22E/CY23E, we expect QRVO to outperform the group.”
As a result, the analyst is bullish on the stock with a Buy rating and a price target of $220 (58.3% upside) on the stock.
The rest of the analysts on the Street are cautiously optimistic with a Moderate Buy consensus rating based on 5 Buys and 10 Holds. The average Qorvo stock prediction of $195 implies upside potential of approximately 40.3% to current levels for this stock.
Bottom Line
While analysts are cautiously optimistic about both stocks, based on the upside potential over the next 12 months, Qorvo seems to be a better buy, even in the face of investor skepticism.
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