Better buy: NVIDIA vs. Qualcomm

These two chip companies have loads of long-term potential.

| More on:
chip and tech stocks represented by two computer chips side by side

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on All figures quoted in US dollars unless otherwise stated.

If you're in the market for an investment in the chip industry, you've likely considered powerhouse players Qualcomm Inc (NASDAQ: QCOM) and NVIDIA Corporation (NASDAQ: NVDA). The former has a long history dominating the cellular chip space, and the latter is currently a leader in the graphics processing unit (GPU) market. 

Both tech companies are positioning themselves to benefit from long-term chip trends, but which is a better buy right now? Let's take a closer look at what each is doing to grow its business to find out. 

The case for Qualcomm 

Qualcomm's bread and butter for many years has been the company's long list of 3G and 4G patents that it collected royalties on from device makers. Qualcomm was involved in several years-long battles with other tech companies over how much it receives for its patent royalties, but much of that has been settled now. 

The company's chip business is still alive and well and sales to device makers, including Apple, Samsung, and Xiaomi, account for about three-quarters of the company's total revenue. The rest of the company's sales come from its licensing business, which still brings in most of Qualcomm's profit. 

Qualcomm is banking on the next wave of cellular devices, 5G smartphones, as a potential catalyst for its business. While 5G could take a few years to fully take off, Qualcomm already has 110 5G agreements with smartphone makers and all of the major handset manufacturers for its 5G licensing. 

Qualcomm is optimistic that 5G could boost its business because it estimates that the number of 5G-enabled smartphones will grow 150% this year. 

The case for NVIDIA

NVIDIA's core business is designing graphics processors for gaming and data centers. The company's GPUs do a fantastic job of processing images and graphics quickly, which makes them great for gaming and for artificial intelligence processing as well. 

Tech companies are increasingly needing to use GPUs to help assist other processors and, as a result, NVIDIA's data center sales grew an astonishing 162% in the most recent quarter (reported on Nov. 18). Meanwhile, NVIDIA's GPU sales in the gaming market continue to grow as well. The company's gaming segment revenue grew 37% in the most recent quarter and still represents 48% of the company's total sales.

The long-term opportunities for NVIDIA come from the ways its chips can be used by other tech companies and its current market position over competitors like Advanced Micro Devices. Not only is NVIDIA a GPU leader, but its chips are tapping into long-term growth trends in gaming, AI cloud computing, and 5G data centers. 

The global GPU market was worth an estimated $19.8 billion in 2019 but will balloon to $200 billion by 2027. With NVIDIA already tapping into key markets and leading its rival in the GPU space, the tech giant is well-positioned to continue growing. 

The verdict: Buy NVIDIA 

While Qualcomm certainly has some potential to be a good investment, NVIDIA's diversification of its GPU business across data centers, gaming, and future tech (think driverless cars) makes the company a better long-term bet. On top of that, NVIDIA's core businesses are performing well and providing stability for the company as it pursues new revenue opportunities. All of this gives NVIDIA an edge over Qualcomm in this match-up.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, NVIDIA, and Qualcomm. The Motley Fool Australia has recommended Apple and NVIDIA. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

electric vehicle such as Tesla being charged at charging station
International Stock News

Why did the Tesla share price just tumble 7%?

Nasdaq investors just sent the Tesla share price sharply lower.

Read more »

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »