Which Chip Stock Are Investors Buying: Advanced Micro Devices (AMD) vs. United

As the rising tide of technological advancements continues to boost investor interest in chip stocks, let us compare prominent chip makers Advanced Micro Devices (AMD) and United Microelectronics (UMC) to identify which is the better investment. Read on.

In this article, I evaluated leading chip maker Advanced Micro Devices, Inc. (AMD) and Taiwan-based United Microelectronics Corporation (UMC) to determine a better investment choice. Based on the fundamental comparison of these stocks, I believe UMC is the better buy for the reasons explained throughout this article.

The global semiconductor market is driven by the widespread use of semiconductors across various sectors like electronics, automotive, industrial equipment, networking, and data processing.

The growth is further fueled by increasing digital technology adoption and consumer electronics usage worldwide. The rapid expansion of AI, machine learning, IoT, and wireless communication devices also propels the semiconductor demand.

In addition, the healthcare sector is also shifting toward advanced technologies for medical imaging, monitoring, and diagnostics, boosting the chip industry. Thus, the global semiconductor market is expected to reach $1.88 trillion by 2032, growing at a CAGR of 12.3%.

AMD has gained 78.8% year-to-date compared to UMC’s 11.2% returns. Moreover, UMC has gained 6.8% over the past year, while AMD has returned 11.5%.

However, here are the reasons why I think UMC could be a better buy in the near term:

Latest Developments

On August 3, 2023, AMD announced two new additions to the AMD Radeon™ PRO W7000 Series product line: the AMD Radeon™ PRO W7600 and AMD Radeon™ PRO W7500 workstation graphics cards. The new graphics cards are designed to tackle mainstream workloads across a range of professional industries, including Media & Entertainment, Design & Manufacturing, Architecture, Engineering & Construction.

Conversely, on May 10, UMC’s subsidiary United Semiconductor Japan Co., Ltd. and DENSO Corporation (DNZOY) jointly announced a collaboration to manufacture Insulated Gate Bipolar Transistors (IGBT).

This accomplishment arrives merely a year following a strategic collaboration between the two firms aimed at creating this vital power semiconductor element for electric vehicles.

In the same month, UMC revealed that its 40nm RFSOI technology platform is ready for the production of millimeter-wave (mmWave) Radio Frequency (RF) front-end products. This advancement is anticipated to play a pivotal role in accelerating the adoption of 5G wireless networks and associated applications, encompassing smartphones, Fixed Wireless Access (FWA) systems, and small cell-base stations.

Recent Financial Results

During the fiscal second quarter that ended July 1, 2023, AMD’s net revenue declined 18% year-over-year to $5.36 billion. Its non-GAAP gross profit decreased 25% year-over-year to $2.67 billion. While its non-GAAP operating expenses rose 3% from the prior-year quarter to $1.61 billion, non-GAAP operating income declined 46% year-over-year to $1.07 billion.

Moreover, AMD’s non-GAAP net income and earnings per share decreased 44% and 45% year-over-year to $948 million and $0.58, respectively.

In contrast, in the second quarter, which ended June 30, 2023, UMC’s operating revenue amounted to $1.81 billion, while its gross profit came in at $651 million. Its operating expenses declined 14.7% from the previous-year quarter to $184 million.

In addition, the company’s attributable net income and earnings per ADS amounted to $511 million and $0.20.

Past and Expected Financial Performance

AMD’s revenue has grown at 42% CAGR over the past three years. Analysts expect AMD’s EPS to amount to $0.68 in the current quarter, $0.89 in the next quarter, and $2.75 in the current year. Moreover, its revenue is expected to reach $5.70 billion in the current quarter, $6.40 billion in the next quarter, and $22.83 billion in the current year.

On the other hand, over the past three years, UMC’s revenue and EPS have grown at a CAGR of 15.1% and 78.6%. Analysts expect UMC’s EPS to amount to $0.16 in the current quarter, $0.18 in the next quarter, and $0.75 in the current year. Moreover, its revenue is expected to reach $1.77 billion in the current quarter, $1.80 billion in the next quarter, and $7.03 billion in the current year.

Profitability

UMC’s trailing-12-month EBIT and EBITDA margins of 32.97% and 48.39% are higher than AMD’s negative 1.73% and positive 14.17%, respectively. UMC’s trailing-12-month net income margin of 31.60% is higher than AMD’s negative 0.11%.

Thus, UMC is more profitable.

Valuation

In terms of forward non-GAAP P/E, UMC is trading at 9.94x, lower than AMD’s 42.09x. UMC’s forward EV/Sales of 2.10x is lower than AMD’s 8.05x. Additionally, AMD’s forward P/S multiple of 8.20 is higher than UMC’s 2.61.

Hence, UMC is more affordable.

POWR Ratings

AMD has an overall D rating, which…