Nvidia Stock Vs Qualcomm: Which Is Best?

Nvidia Corp BDR (NASDAQ:NVDA) and Qualcomm, Inc. (NASDAQ:QCOM) are both California-based chip manufacturers.

Nvidia is the leader in high-end graphics processing units (GPU) for gaming and professional uses, along with artificial intelligence (AI). It’s also working to buy Arm, which is used in approximately 90 percent of all smartphones around the world, from SoftBank for $40 billion.

This puts it in competition with Qualcomm, which has long created intellectual property (IP), semiconductors, and other technology focused on wireless. As the race to 5G heats up, analysts are debating between Nvidia stock vs Qualcomm.

So, which is best?

Both companies are experiencing historic high market caps, as they surged in price almost consistently since the onset of the pandemic.

Expectations are high heading into a holiday season where consumer spending is under a microscope. The stock market is likely to be turbulent in 2021, and these technology stocks are hot buys. Why is that?

Nvidia Acquiring ARM = Path To Growth

Nvidia’s market capitalization is over $335 billion in the fourth quarter of 2020, following a successful launch of its RTX 30xx line of graphics cards.

The GPUs in these cards are coveted in a holiday season flooded with high-end gaming equipment, including Sony’s PlayStation 5, Microsoft’s Xbox Series X, and Facebook’s Oculus Quest 2 all-in-one virtual reality headset.

Each of these devices is working with their own proprietary GPUs, bypassing Nvidia, but its cards are still widely acclaimed by critics and consumers for PC gaming, cryptocurrency mining, video processing, video game development, and more.

It also faces competition from rival AMD, which did get its CPUs in some of the gaming consoles listed above, even if they use proprietary GPUs.

Besides its latest generation of graphics cards, what’s fueling the bull run on Nvidia stock though is its mergers and acquisitions. Buying Arm Holdings will give it an impressive growth in the mobile and data center sectors.

This will help stabilize any volatility caused by supply chain issues plaguing the actual releases of these cards. Each sold out within hours of its pre-order release, and stock is expected to be hard to find throughout the holiday season, despite the $1500 price tag attached to the RTX 3090.

In fact, the company faced the same problem a few years ago, which is something that’s also going to generate revenue moving forward.

Qualcomm PE Ratio Is More Attractive 

Qualcomm is the manufacturer of Snapdragon mobile chips that are widely used in smartphones. Because these have a lower margin, it focuses on higher-volume sales. However, the rush to virtual work didn’t necessarily translate to a boost in smartphone sales.

In reality, the global smartphone market is forecasted to experience a 9.5 percent decline in sales. Issues facing major phone companies like Apple and Huawei trickle down into this business, but it still has a market capitalization hovering around $150 billion in the fourth quarter of 2020.

Its P/E ratio of 54.48 is almost half of Nvidia’s 99.67 P/E ratio, representing a potential value, if the company can maintain a growth trajectory through the 5G transition.

It’s taking steps to do exactly that by expanding into mobile communications base stations. Its 5G chips and software solutions for these base stations make it a strong part of the foundation of the mobile revolution.

Because it uses an open standard, it can easily be adopted by a variety of suppliers. This helped the company build a white-hot buzz heading into the end of 2020.

Hurdles Ahead For Nvidia Stock

The biggest problem with Nvidia’s stock during the 2020 holiday season is its share price, which is fast approaching the $500-600 per share range. This historic rise is over 10x what it traded for just 3 years earlier.

It’s also nearly 3x the trading price at the close of 2019. The company’s P/E ratio of 99.67 nearly puts it in the top 100 highest P/E ratios on the entire global market and is certainly high for the U.S. market.

This is a sign that investors expect high earnings to continue alongside increasing revenues, which already hit a record high of $3.87 billion for the second quarter, a 26 percent increase from the same period in the prior year.

It also faces rising competition. On top of the video game console manufacturers using proprietary GPUs, cryptocurrency mining companies like Bitmain are trying to take a bite out of Nvidia’s pie. Bitmain earned $300 million in revenue for the first quarter of 2020 on the back of its GPU-based mining hardware.

While its GPUs are currently being designed to maximize mining efficiency for each of the major cryptocurrencies, it could easily transition its semiconductor business toward gaming and other professional applications.

On top of this, some Chinese companies like Huawei are trying to block Nvidia’s Arm acquisition, which could delay profitability.

Will Qualcomm Need To Pay Nvidia Licensing Fees?

Qualcomm stock is also at a historic high market cap in the fourth quarter of 2020, with share prices hovering in the $125-150 range. This is more than double the value during the coronavirus crash, but only a 30 percent improvement from the start of the year.

By comparison to Nvidia, this underperformance could indicate the company is a value buy, especially with a P/E ratio that’s nearly half its competitor. However, Qualcomm is heavily invested in the success of 5G, and that rollout has been filled with expensive delays and obstacles.

The company could also find itself paying Nvidia licensing fees for using its IP in its Snapdragon processors.

Qualcomm Vs Nvidia Stock: The Bottom Line

Both Qualcomm and Nvidia are experiencing record high market caps in 2020. Tech savvy investors recognize these California tech companies as being at the forefront of the razor’s edge of computing.

They power the world’s phones, computer graphics, Internet of Things, and AI, and the growth in these segments is likely what will pull the economy out of recession in the 2020s.

Either company would make a relatively safe investment, but Qualcomm has the most growth potential, while Nvidia could face a higher market cap drop if it runs into issues with its RTX 30xx series GPUs, the next generation, or even its M&As. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.