ASML Holding N.V. (ASML) is a Netherlands-based company that develops, produces, markets, sells, and services advanced semiconductor equipment systems, with a focus on lithography related systems worldwide. It caters mainly to the makers of memory chips and logic chips.
Intel Corporation (INTC) designs, manufactures, and sells computer products and technologies that deliver networking, data storage and communication platforms. The company’s products include microprocessors, chipsets, embedded processors and microcontrollers, flash memory, graphic, network and communication, systems management software, conferencing, and digital imaging products.
The demand for semiconductors has increased with the heightened need for tech products and solutions amid the pandemic. Also, semiconductors play an integral role in the production of electric vehicles (EVs) and 5G deployment. The rapid digital transformation of almost all the industries has caused an acute shortage of semiconductor chips worldwide, leading to a rise in their prices.
Governments around the world are now investing heavily to scale semiconductor chip production. This, coupled with immense private investments, should allow the industry to grow significantly. In fact, the global semiconductor manufacturing equipment market is expected to grow at a 9.6% CAGR over the next five years.
But, while INTC lost 1.1% over the past month, ASML surged 3.7%. In terms of their year-to-date performance, ASML is a clear winner with 49.5% gains versus INTC’s 14.8% returns. But, which of these stocks is a better pick now? Let’s find out.
Click here to checkout our Semiconductor Industry Report for 2021
Latest Movements
On April 30, 2021, ASML divested its subsidiary Berliner Glas Group’s technical glass division to Swiss company Glas Trösch Group. The transaction included companies in Schwäbisch Hall and Syrgenstein that specialized in the production of display glass and touch assemblies.
On May 18, 2021, Toyota Motor Corporation (TM) chose Mobileye, an INTC subsidiary in Israel, and ZF Group, a German car parts maker, to develop advanced driver-assistance systems (ADAS) for use in multiple vehicle platforms, beginning in the next few years. Combining Mobileye EyeQ4 vision-computing system-on-chips (SoCs) with ZF’s Gen 21 mid-range radar technology in ZF’s automotive cameras, should help prevent and mitigate collisions, while yielding best-in-class lateral and longitudinal vehicle control in TM vehicles. Both companies hope to create a long-standing partnership with TM.
On May 11, INTC launched the new 11th Generation Intel Core H-series mobile processors, led by the flagship Intel Core i9-11980HK SoCs, which delivers the highest-performance in laptops for gaming, content creators and business professionals, reaching speeds of up to 5.0GHz. By introducing innovative features that help in delivering industry-leading mobile performance, INTC hopes to witness its good sales in the near-term.
Recent Financial Results
For the fiscal 2021 first quarter, ended April 4, ASML’s total net sales increased 78.8% year-over-year to €4.36 billion ($5.34 billion). The company’s gross profit increased 113.6% year-over-year to €2.35 billion ($2.88 billion). Its income from operations came in at €1.56 billion ($1.91 billion), up 265.7% from the prior-year period. While its net income increased 240.9% year-over-year to €1.33 billion ($1.63 billion), its EPS increased 244.1% year-over-year to €3.20. The company had cash and cash equivalents of €3.24 billion ($3.97 billion) as of April 4, 2021.
For its fiscal year 2021 first quarter, ended March 27, INTC’s non-GAAP operating margin was 32.8%, which represented a 130-basis-point rise sequentially. The company’s revenue from its IoT segment increased 13.5% year-over-year to $1.29 billion. And its revenue from its Client Computing Group increased 8.5% year-over-year to $10.61 billion. The company had cash and cash equivalents of $5.19 billion as of March 27, 2021.
Past and Expected Financial Performance
ASML’s revenue and net income grew at CAGRs of 19.7% and 28%, respectively, over the past three years. The company’s EPS has increased at a 28.9% CAGR over the past three years.
Analysts expect ASML's revenue to increase 32.1% year-over-year for the fiscal second quarter (ending June 30, 2021), 30.1% in the current year, ending December 2021, and 13.2% in its next fiscal year. Its EPS is expected to increase 48.4% year-over-year for the second quarter, 49.8% for the current year and 19.3% next year. Its EPS is expected to grow at a rate of 29.8% per annum over the next five years.
In comparison, INTC's revenue and net income grew at CAGRs of 6.7% and 18.8%, respectively, over the past three years. The company’s EPS has increased at a 24.6% CAGR over the past three years.
Analysts expect INTC’s revenue to decline 9.8% in its fiscal 2021 second quarter (ending June 30, 2021), 6.7% in the current year ending December 2021, and marginally in its next fiscal year. Its EPS is expected to decline 13.1% year-over-year in the second quarter, 12.6% in the current year, and 1.7% next year. However, the stock’s EPS is expected to grow at a 5.4% rate per annum over the next five years.
Profitability
INTC's trailing-12-month revenue is 4.2 times ASML’s. INTC is also more profitable, with a 44.6% EBITDA margin compared to ASML’s 35.1%.
Also, INTC's 54.6% gross profit margin compares with ASML’s 50.6%.
Valuation
In terms of non-GAAP forward P/E, ASML is currently trading at 43.70x, 255.9% higher than INTC, which is currently trading at 12.28x. INTC’s forward EV/Sales of 3.34x is significantly lower than ASML’s 12.65x.
Also, in terms of forward EV/EBITDA, ASML’s 35.05x is 368% higher than INTC’s 7.49x.
Thus, INTC is more affordable here.
POWR Ratings
While ASML has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system, INTC has an overall B rating, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Value, INTC has been graded an A. This is justified because the company’s 7.49x forward EV/EBITDA value is 55.5% lower than the 16.84x industry average. In comparison, ASML’s Value Grade of F reflects its extreme overvaluation. The company’s 35.05x forward EV/EBITDA is 108.1% higher than the 16.84x industry average.
INTC has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. The company’s 54.62% gross profit margin is 12.6% higher than the 48.53% industry average. ASML, in comparison, has a Quality Grade of C, which is in sync with the company’s 50.61% EBITDA margin, which is slightly higher than the industry average.
Out of 98 stocks in the B-rated Semiconductor & Wireless Chip industry, ASML is ranked #52, while INTC is ranked #20.
Beyond what we’ve stated above, our POWR Ratings system has also rated both ASML and INTC for Growth, Momentum, Stability, and Sentiment. Get all ASML ratings here. Also, click here to see the additional POWR Ratings for INTC.
The Winner
Both ASML and INTC have the potential to deliver solid returns in the coming months based on their collaborations with leading tech companies and impressive next-generation product launches. However, we believe INTC is a better buy based on its relatively lower valuation and higher profitability.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
ASML shares were unchanged in after-hours trading Wednesday. Year-to-date, ASML has gained 38.55%, versus a 12.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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