The semiconductor industry has sold off very hard this year, yet it still has a massive long-term runway for growth considering the enormous secular digital revolution marches on. To add some perspective on the types of companies in the industry, here is a look at 25+ top chip stocks, sorted by net profit margins. As you can see, these stocks have widely different expected growth rates, and that’s a metric that seems to garner the lion’s share of media and investor attention, but at the end of the day earnings (not sales) is what drives value for investors.
For example, Nvidia and Intel have among the highest net profit margins among top chip stocks, but they also have widely different growth trajectories and valuations. And from a PEG ratio standpoint, the valuation gap narrows. And considering the steep rise in interest rates this year, Nvidia has been a lot more volatile as its future earnings get discounted back to the present at a higher rate.
Also interesting to note, the high versus low research margins can be a quick and dirty way to identify which companies are innovators (high research budgets) and which are not.
For further reading, we also recently wrote a detailed report on Micron, another popular chip stock, here.