The semiconductor industry’s long-term prospect looks bullish amid rising investments in semiconductor manufacturing and a diverse range of emerging applications.

The industry is expected to grow at a CAGR of 9.3% until 2027. Therefore, quality stocks Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Company Limited (TSM) are expected to gain significantly.

AMD has lost 16.6% over the past month, while TSM has lost 10.2%. AMD has gained 2.2% over the past three months, while TSM has gained 8.7%. But which of these stocks is the better pick now? Let's find out.

Latest Developments

On December 1, 2022, AMD and Viettel High Tech (Member of Viettel Group) announced the successful completion of a 5G mobile network field trial deployment. This collaboration for advanced 5G connection deployment is expected to be strategically beneficial for both companies.

On the other hand, on October 26, 2022, TSM announced the Open Innovation Platform® (OIP) 3DFabric Alliance at the 2022 Open Innovation Platform Ecosystem Forum.

Dr. L.C. Lu, TSM’s fellow and vice president of design and technology platform, said, “Through the collective leadership of TSMC and our ecosystem partners, our 3DFabric Alliance offers customers an easy and flexible way to unlocking the power of 3D IC in their designs, and we can’t wait to see the innovations they can create with our 3DFabric technologies.”

Recent Financial Results

AMD’s net revenue came in at $5.57 billion for the third quarter that ended September 24, 2022, up 29% year-over-year. However, its operating loss came in at $64 million compared to an income of $948 million in the year-ago period. 

Moreover, its net income came in at $66 million, down 92.8% year-over-year, while its EPS came in at $0.04, down 94.7% year-over-year.

TSM’s net revenue came in at $20.23 billion for the third quarter that ended September 30, 2022, up 47.9% year-over-year. Its comprehensive income came in at $10.33 billion, up 101% year-over-year, while its EPS came in at $1.79, up 79.8% year-over-year.

Past and Expected Financial Performance

AMD’s revenue is expected to increase 14.4% year-over-year to $5.52 billion for the yet-to-be-reported quarter ending December 2022. However, its revenue is expected to decrease 5.6% year-over-year to $5.56 billion for the quarter ending March 2023. 

Its EPS is expected to fall 27.2% year-over-year and 38.1% year-over-year to $0.67 and $0.70 for the quarters ending December 2022 and March 2023, respectively.

On the other hand, TSM’s revenue is expected to increase 31.7% year-over-year to $74.82 billion in 2022 and 2.8% year-over-year to $76.94 billion in 2023. Its EPS is expected to increase 56.6% year-over-year to $6.45 in 2022. 

Moreover, its EPS is expected to rise 21.5% per annum for the next five years.

Profitability

TSM’s gross profit margin of 57.30% is higher than AMD’s 50.95%. Its EBITDA and net income margins of 68.04% and 42.51% are higher than AMD’s 24.30% and 9.96%, respectively.

In addition, TSM’s ROE, ROA, and ROTC of 36.57%, 19.92%, and 19.33% are higher than AMD’s 7.37%, 2.26%, and 5.72%, respectively.

Thus, TSM is more profitable.

Valuation

In terms of forward EV/Sales, AMD’s 4.32x is 10.9% lower than TSM’s 4.85x. However, its forward EV/EBITDA of 12.87x is higher than TSM’s 7.01x, while its forward P/E of 49.62x compares with TSM’s 11.71x.

POWR Ratings

TSM's overall B rating equates to Buy in our proprietary POWR Ratings system. On the other hand, AMD has an overall rating of D, which translates to Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

TSM has a B grade for Growth, consistent with its steady financials in the latest reported quarter. In comparison, AMD has a D grade for Growth, consistent with its bleak financials.

In addition, TSM has an A grade for Quality. Its trailing-12-month CAPEX/Sales of 47.26% is substantially higher than the industry average of 2.50%.

In contrast, AMD has a D grade for Quality. Its trailing-12-month CAPEX/Sales of 1.80% is 27.8% lower than the industry average.

Of the 92-stock Semiconductor & Wireless Chip industry, TSM is ranked #12, and AMD is ranked #89.

Beyond what we’ve stated above, we have also rated the stocks for Value, Momentum, Stability, and Sentiment. Click here to view TSM ratings. Get all AMD ratings here.

The Winner

Markets are expected to rebound substantially in 2023. Benchmark indices are expected to gain solid returns this year. Given the steady prospects of the semiconductor industry, quality stocks TSM and AMD should benefit. However, TSM’s robust financials and profitability make it a better Buy.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Semiconductor & Wireless Chip industry here.

AMD shares were trading at $63.98 per share on Tuesday afternoon, down $0.79 (-1.22%). Year-to-date, AMD has declined -1.22%, versus a -0.85% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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