Semiconductor industry sales are skyrocketing thanks to long-term trends in artificial intelligence (AI) and electric vehicles (EVs). The semiconductor market is expected to reach more than $600 billion in 2024 and $1 trillion by 2030, making investing in semiconductor companies a good way to take advantage of this growth.
Two semiconductor industry leaders to consider are Wolfspeed (NYSE:Wolf) and Nvidia (NASDAQ:NVDA). The former commands more than 50% market share in the silicon carbide (SiC) wafer space, while the latter’s leadership in AI semiconductors has seen its stock price soar more than 170% by the week ending December 13 in 2024. It made headlines.
Both offer innovative technologies that make them attractive investments. To assess which semiconductor stock is better over the long term, let’s take a look at Wolfspeed and Nvidia.
What makes Wolfspeed an attractive investment is its focus on silicon carbide (SiC). The company developed its first commercial SiC wafer in 1991. SiC wafers have many advantages over silicon, which is widely used in the semiconductor industry today, especially in EVs. Silicon carbide allows EVs to travel longer distances and reduces charging time.
Wolfspeed believes SiC sales will eventually grow to $3 billion in annual revenue as the EV market expands. For comparison, the company’s fiscal 2024 revenue, which ended June 30, was $807.2 million.
While SiC’s potential looks promising, the company has some hurdles to overcome first. The company is trying to increase production at its SiC manufacturing plant, but costs are high.
For example, in the first quarter ended September 29, sales were $194.7 million, but cost of revenue was $230.9 million. As a result, the company had a gross profit of $77.4 million at the end of fiscal 2024, which turned into a loss of $36.2 million in the first quarter.
The company also faces periodic economic downturns, causing sales to decline. First quarter sales were $194.7 million, down from $197.4 million a year ago. Declining sales, lack of profitability and high production costs led to Wolfspeed’s CEO resignation in November.
The rise of AI has turned Nvidia into a semiconductor powerhouse. Currently, it is the world’s leading semiconductor company in terms of market capitalization.
CEO Jensen Huang foresaw the need for accelerated computing in 1999 and introduced the graphics processing unit (GPU). Instead of relying on a single CPU to do everything, accelerated computing uses dedicated processors to tackle intensive tasks, such as processing data with an AI system.
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This pioneering work in GPUs has enabled the company to generate huge revenue for the cloud computing industry, which is powered by AI systems. In its fiscal third quarter, which ended Oct. 27, Nvidia’s revenue reached a record $35.1 billion, an impressive 94% increase from the same period last year. This brought gross profit for the quarter to $26.2 billion, nearly double the $13.4 billion a year earlier.
Nvidia’s AI products are just getting started. The company is rolling out a modern computing architecture called Blackwell. According to executives, the new platform “pushes the boundaries of scientific computing.”
That will be a key revenue driver. Huang said current systems are trained on data generated by humans before AI. AI is now starting to learn from content it generates synthetically.
This requires more computing power, which Blackwell provides. “So we’re seeing a lot of demand coming from a lot of different places,” Huang said, suggesting that customers continue to crave the company’s products for AI.
In the case of Wolfspeed and Nvidia, the latter’s strong sales, strong profits, and continued demand make the choice between the two semiconductor giants seem obvious. However, stock valuation is also an important consideration.
Comparing Wolfspeed and Nvidia using price-to-sales (P/S), a metric that measures how much investors are willing to pay for each dollar of sales, reveals a clear picture.
Data by YCharts.
Wolfspeed’s recent struggles have seen its stock price drop more than 80% through Dec. 13 of this year. As a result, the company’s bottom line is at its lowest in years, but Nvidia has achieved the opposite thanks to its success with AI.
Therefore, Wolfspeed stock emerges as more valuable and could provide further upside over the long term if the company can bounce back from its current challenges. However, only investors with a high risk tolerance should consider buying the stock, as it faces many headwinds in the short term.
For other companies, NVIDIA’s past success and continued revenue growth opportunities with Blackwell make it a better long-term investment in the semiconductor sector.
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Robert Izquierdo holds a position at Nvidia. The Motley Fool has positions in and recommends Nvidia and Wolfspeed. The Motley Fool has a disclosure policy.
The first edition of Better Semiconductor Stocks: Wolfspeed vs. Nvidia was published by The Motley Fool.
