How Do Chipmakers Stack Up When it Comes to Growth?

Key Points

• The chip industry as a whole has trended lower in 2022 based on a confluence of factors.
• Analysts see Nvidia posting a strong earnings growth rebound in 2023.
• AMD has been strengthening its capabilities in data-center chips, which could be a bright spot.
• Intel's new CEO has plans to gain ground over overseas rivals and to invest in the company's plants. 

Gone are the days when large-cap semiconductor stocks like Nvidia Corporation NASDAQ: NVDA and Advanced Micro Devices Inc. NASDAQ: AMD were riding high on pandemic-era demand for electronics gear, combined with chip shortages. Industry peer Intel Corporation NASDAQ: INTC didn't fare as well in 2020 and 2021, but what do the prospects for all three look like now? 

These days, chip makers and chip-equipment makers are mediocre performers relative to other industries. 

However, each company's outlook is quite different in its area of specialization. 

Nvidia is up more than 31% in the past three months, although that rally sputtered in the past month. 

Nvidia specializes in chips for video games and other graphics applications. When it reported third-quarter results in mid-November, revenue exceeded expectations, although the company missed earnings views, MarketBeat data show. 

Sales of $5.931 billion were 17% below the year-ago quarter. As a result, earnings of $0.58 per share were 50% lower. It was the second quarter in a row in which earnings fell year-over-year. 

The company expanded into data-center chips, a business that was dinged by U.S. restrictions on chips exported to China. The cryptocurrency collapse and a decline in crypto mining also hurt the gaming business unit. Covid lockdowns in China also hurt results. 

Since the earnings report, shares have been up 4%. Most of that gain occurred during sessions where the broader market also trended higher. 

Analysts have a "moderate-buy" rating on Nvidia, according to data compiled by MarketBeat. The consensus price target is $205.23, representing a potential upside of 22.78%. 

For the full year, Wall Street sees Nvidia earning $3.27 per share, down 25% from 2021. Next year that's seen rebounding by 33% to $4.35 per share.

Slower Earnings Growth Ahead?

Advanced Micro Devices, meanwhile, is expected to grow earnings this year and next, although Wall Street sees a more significant bump this year, with growth slowing to just 4% in 2023. 

Despite that, analysts' price targets for AMD show a consensus target of $99.88, which would be an upside of 52.88%. That may seem very optimistic for a stock that's declined at a similar rate, 53.77%, this year. Nevertheless, it's worth noting that stock takes more upside juice to regain its former value.

AMD competes with Nvidia in the market for graphics cards. While Nvidia has been gaining market share, some of that has come at Nvidia's expense. In addition, AMD has suffered for some of the same reasons Nvidia has. 

On the other hand, while it and Nvidia have seen weakness in data centers in 2022, analysts expect AMD to see strong growth in that line of business. Nvidia is still a formidable competitor, though, as it announced its Grace line CPU Superchips, slated to begin shipping in early 2023.

In addition, Nvidia has the attraction (for some investors) of paying a dividend, something AMD does not yet offer.

Intel's Long Price Decline

Meanwhile, well-established stalwart Intel declined 44.45% this year, continuing a downdraft that began in April of 2021. This stock completely missed the rallies that Nvidia and AMD staged heading into the final months of 2021. 

In addition, analysts have a dim view of Intel's earnings growth prospects, forecasting declines of 63% this year and a more subdued drop of 2% in 2023. Intel has reported decreases in net income in six of the past eight quarters, as MarketBeat earnings data show. 

Intel remains the market leader in designing and manufacturing chips for servers and personal computers. It also has a robust data-center business. 

But Intel made several missteps when it came to new business ventures. Those mistakes resulted in the stock's failure to rally in 2020, while other techs roared back from the initial pandemic-driven meltdown. As a result, revenue growth in the past two years has been scant or non-existent.  

The company's missteps in recent years included forays into drones, wearables, robotics, virtual reality, self-driving cars, and smart glasses. 

However, last year, the company realized the error of its ways and hired a new CEO, Pat Gelsinger, who had served as a chip designer at Intel. A new CEO can often be a catalyst for renewed growth in stock. Gelsinger has discussed ambitious plans to gain ground on Asian chipmakers and make capital investments in U.S. facilities. 

Of the three companies, Nvidia appears the most suited to notch substantial price gains in 2023, based on analysts' expectations for the company's earnings. 

But events such as a new product announcement, a new partnership, or forecasts that exceed expectations always have the potential to send any higher stock than investors or analysts anticipate.