Will Qualcomm, AMD, or Texas Instruments market capitalization surpass Intel soon?

[count]

These supposedly expensive companies keep getting more expensive. On of my biggest regrets was not buying NVidia in 2017 because it looked to expensive then as well. More expensive as it is today, if NVidia keeps growing earnings at 40-50% a year it's more than justified.

 

[VCT]

AMD P/E of 45 is actually very cheap for a company growing 50%+ a year. Nothing high about QCOM's 21x P/E ratio. Broadcom's P/E ratio is a bit high, but Hock Tan has proven himself over and over again and investors have confidence that he will be able to continue the growth. NVidia P/E is very high even considering it's growth, but the stock could fall 50% tomorrow and still be 50% larger than Intel by market cap.

The fact that these companies are being valued more than Intel is not an accident of the market in my opinion. They reflect the very strong fundamentals of these market leaders vs the very real challenges Intel is facing. And if Intel reclaims it's leadership spot, it won't be because AMD/NVidia/Qualcomm/Broadcom faltered - it'll happen if either IDM 2.0 is successful (not likely in my opinion) or the company goes fabless.

Do you believe 5-10 years later AMD will make $20B a year like Intel did right now?

 

[count]

Do you believe 5-10 years later AMD will make $20B a year like Intel did right now?

Here is some back of the envelope analysis:

1. Analyst estimates are for AMD are $4b in 2022
2. AMD currently growing at over 60% a year. That might be elevated, but I think they should be able to grow 30% a year for the next 5 years. There are lots of avenues for this growth but the main one will be HPC. You can get 30% growth by assuming the market will grow 15% and AMD will double it's market share from here.
3. At a 30% growth rate, AMD can increase earnings ~5x over the next 6 years. There is your $20b.
4. If growth rate is slower, maybe it takes 10 years instead of 6 years.
4. It's not earnings that matter, it's discounted free cash flow. Earnings is just a poor proxy for free cash flow.
5. AMD is fabless, which requires much less capex. Given that it's free cash flow that matters, and that fabless companies are able to convert a much higher percentage of their earnings to free cash flow, a dollar of earnings at AMD is intrinsically more valuable than a dollar of earnings at Intel. For this reason AMD earning $10b a year is like Intel making $20b a year.
6. If you put a 20x earnings multiple on AMD 6 years from now (remember fabless companies deserve a much higher multiple than IDM or foundry) you have a $400b company in 6 years.

Also, the ONLY reason I am not shorting Intel is they could decide to go fabless, and if that happens the share price would quickly double.

 

[VCT]

Here is some back of the envelope analysis:

1. Analyst estimates are for AMD are $4b in 2022
2. AMD currently growing at over 60% a year. That might be elevated, but I think they should be able to grow 30% a year for the next 5 years. There are lots of avenues for this growth but the main one will be HPC. You can get 30% growth by assuming the market will grow 15% and AMD will double it's market share from here.
3. At a 30% growth rate, AMD can increase earnings ~5x over the next 6 years. There is your $20b.
4. If growth rate is slower, maybe it takes 10 years instead of 6 years.
4. It's not earnings that matter, it's discounted free cash flow. Earnings is just a poor proxy for free cash flow.
5. AMD is fabless, which requires much less capex. Given that it's free cash flow that matters, and that fabless companies are able to convert a much higher percentage of their earnings to free cash flow, a dollar of earnings at AMD is intrinsically more valuable than a dollar of earnings at Intel. For this reason AMD earning $10b a year is like Intel making $20b a year.
6. If you put a 20x earnings multiple on AMD 6 years from now (remember fabless companies deserve a much higher multiple than IDM or foundry) you have a $400b company in 6 years.

Also, the ONLY reason I am not shorting Intel is they could decide to go fabless, and if that happens the share price would quickly double.

Assume total profit for the addressable market is $30B in 2022. Intel 65%=19.5B AMD 14%=4.2B
If total profit for the addressable market become $60B in 2030. Intel 45%=27B. AMD 30%=18B

With Intel TSMC fabs producing in 2023. AMD growth rate would be slower.
Just my two cents. I sold AMD last year and have a lot TSMC stock now.

 

[Daniel Nenni]

Crazy numbers. Next year should settle a bit but double digit growth could be our new normal, absolutely.

 

[count]

Qualcomm is very interesting to me right now.

23x earnings for a fast growing fabless company is a great value. And I think the acquisition of Nuvia was absolutely genius. The M1 validated ARM processors for the PC market, and now the very same team that developed M1 is at Qualcomm working closely with Microsoft to finally make Windows on ARM competitive. After many false starts I think this might be it.

 

[hist78]

Crazy numbers. Next year should settle a bit but double digit growth could be our new normal, absolutely.

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It's crazy to see 30% to 60% growths considering last year was not really a bad year for semiconductor industry.

While most major semiconductor companies, big or small and old and new, are getting significant growth in 2021, Intel is forecasted to have negative 1% growth. It's crazy! Intel's problems are much wider and deeper than many people, including me, thought. Something doesn't add up.