Volatility in Semis? 3 Stable Alternatives to NVIDIA and SMCI
The technology sector has been the focus of attention lately, with a special focus on the semiconductor industry and its biggest stories. Out of all the businesses centered in this space, two have commanded the most attention today, for good and bad reasons alike.
NVIDIA Co. (NASDAQ: NVDA) has been the darling of artificial intelligence and semiconductors for over a year now, but recent allegations and speculation surrounding Super Micro Computer Inc. (NASDAQ: SMCI) have created some tailwinds that investors now have to weigh and deal with to protect their capital in the coming quarters. As the troubles surrounding Super Micro Computer stock resolve shortly, NVIDIA might be out of the woods.
But there’s also a chance that the stock faces a significant decline if the news isn’t favorable, which is why investors should have a backup plan in pursuing the next wave higher in semiconductors and artificial intelligence. Knowing this, it would be beneficial to consider names such as Intel Co. (NASDAQ: INTC) and its potential buyer, Qualcomm Inc. (NASDAQ: QCOM). Apart from this, there are also notable discounts in shares of Micron Technology Inc. (NASDAQ: MU) for investors to consider.
Why Qualcomm Acquiring Intel Makes Sense Today
There was news floating around the market that Qualcomm had been attempting to make a merger bid for Intel. At today’s market capitalization of $103.4 billion, this transaction would make it the largest takeover in Wall Street's history. Of course, there are many more implications that make this a no-brainer for Qualcomm.
Starting with the fundamental trends, the new United States administration is seeking to revive the manufacturing sector, which means boosting the pace at which Intel would need to grow its domestic production footprint. Factories for semiconductors in Ohio and Arizona are being actively built for Intel chip production, and that’s a tailwind Qualcomm sees.
When new trade and tariff policies come into the economy, it’ll be names like Intel that could carry on with the task of job creation in the sector, and that should be worth more to the market than today’s low 0.8x price-to-book (P/B) valuation. Now, here’s the quantitative side of the story incentivizing Qualcomm to buy Intel.
Qualcomm trades at a forward P/E ratio of 22.5x today, commanding a premium of over 77% compared to Intel’s valuation of only 12.7x forward P/E. This not only makes it an acquisition target, but it is also a relatively cheap way for Qualcomm to buy into the potential growth that Intel stock can bring it once merged.
According to Wall Street analysts, Intel earnings per share (EPS) could be set to grow to just over $0.20, which would be a significant jump from today’s net loss of $0.46 a share. Now, given that Qualcomm is only set to grow its earnings by a relatively flat amount over the next 12 months.
This way, acquiring Intel would let Qualcomm tap into further growth potential at a relatively low price, but that’s not all. From today’s $100 billion valuation, Intel could still deliver double-digit upside according to a few analysts on Wall Street.
For example, the consensus price target for Intel stock is set today at $30.1 a share, which would call for the company rallying by as much as 25.9% from where it trades today. Here’s why keeping track of analyst targets is important in the middle of a potential merger.
If the consensus price target is set at $30.1 a share, then Qualcomm would have to make a more attractive offer above what analysts are already recommending the stock should be worth. In this case, investors are facing a potential rally that is relatively low risk compared to all of the issues happening with NVIDIA and Super Micro Computer.
Intel Isn’t the Only Semiconductor Deal, Here’s Micron
Trading at 62% of its 52-week high today, Micron Technology stock offers investors a similar discount to those seen in Intel stock, but other metrics matter in this potential deal as well. Looking into Micron’s valuation metrics, a forward P/E ratio of 7.8x would send it into a discount of over 38% from the rest of the industry’s 12.8x average valuation.
Then there is the Wall Street opinion on Micron stock today, which has a consensus price target of $143 a share. To prove the consensus view right, Micron would have to rally by as much as 47% from where it trades today, significantly shifting the risk-to-reward scale in favor of the bulls and away from the potential risks in NVIDIA and Super Micro Computer.
Ultimately, the deal maker will come from the institutional buying activity coming from the likes of State Street, which boosted its holdings in Micron stock by as much as 3.1% as of November 2024. After this new allocation, the group now has up to $5 billion invested in Micron, or 4.3% ownership in the company, to show for these discounts.
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