Amid technological advancements across industries, companies offering semiconductor chips and advanced tech equipment are well-positioned to maintain their momentum in the near future.
I evaluated shares of chip maker Advanced Micro Devices, Inc. (AMD) and optical instruments manufacturer Nikon Corporation (NINOY) to determine the better investment. Based on the fundamental comparison of these stocks, I believe NINOY is the better buy for the reasons explained throughout this article.
Before delving into a detailed comparison of the fundamentals of the stocks mentioned above, it is crucial that we first discuss the growth prospects of the semiconductor and tech equipment space.
The widespread application of chips in diverse domains, such as consumer electronics, automotive manufacturing, industrial equipment, communications, and data processing, is anticipated to expand the semiconductor industry's expansion.
In addition, chip-making requires critical changes from architectural design to sustainable materials and end-to-end fabrication to address the growing demand for semiconductors. The semiconductor industry is adopting the latest technologies that increase efficiency to achieve this.
The global semiconductor market is expected to reach $1.88 trillion by 2032, growing at a CAGR of 12.3%.
On the other hand, the tourism and travel sector's growing popularity is boosting digital camera usage, propelling the optical instrument market's growth. Market players are concentrating on innovation and ramping up research and development investments, creating promising opportunities for future growth.
The global optical instrument and lens market is expected to grow at a CAGR of 7% to $39.78 billion by 2030.
AMD has gained 71.3% year-to-date versus NINOY’s 44.5% returns. However, over the three months, AMD has gained 25.5% to close the last trading session at $110.95, while NINOY has returned 28.2% to complete the last trading session at $12.77.
Here are the reasons why NINOY could be a better buy in the near term:
Latest Developments
On July 11, AMD announced that SAP had chosen AMD EPYC™ processor-powered Google Cloud N2D virtual machines to run its cloud ERP delivery operations for RISE with SAP, further increasing the adoption of AMD EPYC for cloud-based workloads. As enterprises look toward digital modernization, many adopt cloud-first architectures to complement their on-premises data centers. This should bode well for AMD.
In June, AMD announced plans for continued growth in Ireland through an investment of up to $135 million over four years, which is intended to fund several strategic R&D projects through the addition of up to 290 highly skilled engineering and research positions, as well as a broad range of additional support roles.
On June 21, NINOY announced the release of super-telephoto zoom lenses, NIKKOR Z 180-600mm f/5.6-6.3 VR and NIKKOR Z 70-180mm f/2.8, which are compatible with full-frame/FX-format mirrorless cameras for which the Nikon Z mount has been adopted.
While lens NIKKOR Z 180-600mm f/5.6-6.3 VR offers superior agility and outstanding operability and supports the capture of powerful, up-close shots of subjects at a distance, lens NIKKOR Z 70-180mm f/2.8 covers a full range of focal lengths with a constant fast maximum aperture of f/2.8.
Recent Financial Results
During the fiscal first quarter that ended April 1, 2023, AMD’s net revenue declined 9.1% year-over-year to $5.35 billion, while its non-GAAP gross profit decreased 13.7% year-over-year to $2.68 billion.
Its non-GAAP operating expenses rose 17.9% from the prior-year quarter to $1.59 billion, while non-GAAP operating income declined 40.2% year-over-year to $1.10 billion. Moreover, AMD’s non-GAAP net income and earnings per share decreased 39% and 46.9% year-over-year to $970 million and $0.60, respectively.
In the fiscal year that ended March 31, 2023, NINOY’s revenue increased 16.4% year-over-year to ¥628.11 billion ($4.49 billion), while its gross profit increased 22.5% from the year-ago value to ¥289.17 billion ($2.07 billion). The company’s operating profit stood at ¥54.91 billion ($392.86 million), up 10% year-over-year.
The company’s profit for the year and earnings per share amounted to ¥43.28 billion ($309.70 million) and ¥124.77, representing increases of 2.4% and 8% from the prior-year period, respectively.
Past and Expected Financial Performance
AMD’s revenue has grown at 47.1% CAGR over the past three years, while NINOY’s grew at 2.1% CAGR over the same period. However, AMD’s EBIT and net income stood at negative 39.8% and 6.7% CAGRs over the past three years, while NINOY’s grew at 50% and 80.1% CAGRs, respectively, over the same period.
AMD’s revenue and EPS for the fiscal year ending December 2023 are expected to decline 2.5% and 17.8% year-over-year to $23.02 billion and $2.88, respectively. Moreover, for the fiscal quarter ended June 2023, its revenue and EPS are expected to decline 18.6% and 45.3% year-over-year to $5.33 billion and $0.57, respectively.
Street expects NINOY’s revenue to increase 49.4% and 7.8% year-over-year to $4.57 billion and $4.93 billion for the year ending March 2024 and March 2025, respectively. For the fiscal second quarter ending September 2023, NINOY’s revenue is expected to reach $1.17 billion, up 15.4% year-over-year.
Profitability
NINOY has a trailing-12-month EBIT and net income margin of 9.20% and 7.16% compared to AMD’s 0.73% and 1.71%, respectively. NINOY’s trailing-12-month asset turnover of 0.60x compares to AMD’s 0.34x. Also, NINOY’s trailing-12-month ROCE of 7.11% compares to AMD’s 0.72%.
Thus, NINOY is more profitable.
Valuation
In terms of forward EV/Sales, NINOY is trading at 0.84x, 89% lower than AMD, which is currently trading at 7.63x. NINOY’s forward EV/EBITDA multiple of 7.02 is 74.6% lower than AMD’s 27.67.
POWR Ratings
NINOY has an overall rating of B, translating to a Buy in our POWR Ratings system. On the other hand, AMD has an overall D rating, which equates to a Sell. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories.
NINOY’s B grade for Value is justified as the stock’s forward EV/EBITDA of 7.02x, which is 28.8% lower than the industry average of 9.86x. Its forward EV/Sales multiple of 0.84 is 28.6% lower than the industry average of 1.18.
AMD’s Value grade of D is evident as the stock’s forward EV/Sales multiple of 7.63, which is 154.7% higher than the industry average of 2.99, and its forward EV/EBITDA of 27.67x is 87.5% higher than the industry average of 14.76x.
Furthermore, NINOY’s B grade for Stability is in sync with its 24-monthly beta of 0.60, whereas AMD’s D grade for Stability is evident from its 24-monthly beta of 1.78.
Within the Semiconductor & Wireless Chip industry, NINOY is ranked #7, while AMD is ranked #80 out of 92 stocks.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Sentiment, and Quality. Get all ratings of NINOY here. To view AMD’s ratings, click here.
The Winner
The favorable tech climate is set to benefit NINOY and AMD. However, considering NINOY’s robust profitability, attractive valuation, and promising bottom-line estimates, the stock could be a better choice over AMD.
Moreover, for the year ended March 31, 2023, NINOY’s year-end dividend was ¥25 per share, and the full-year dividend will be ¥45 per share, including the interim dividend of ¥20.
Its annual dividend translated to a yield of 2.70% on the current share prices. The company’s four-year average yield is 3.28%.
Our research shows that the 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.
What To Do Next?
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AMD shares rose $0.19 (+0.17%) in premarket trading Monday. Year-to-date, AMD has gained 71.72%, versus a 19.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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