Renowned chip maker Advanced Micro Devices, Inc.’s (AMD) bottom line declined significantly in its last reported quarter. Its operating income declined 36.7% year-over-year to $526 million. Its net income and EPS came in at $447 million and $0.27, down 37% and 53.4% year-over-year, respectively.

Moreover, on October 6, the chip maker slashed its revenue guidance for the third quarter, citing weakening demand for personal computers that equip its chips. “The PC market weakened significantly in the quarter. While our product portfolio remains very strong, macroeconomic conditions drove lower-than-expected PC demand and a significant inventory correction across the PC supply chain,” said AMD Chief Executive Lisa Su.

The company now expects about $5.60 billion of sales for the quarter ended September 30, about $1.10 billion less than the previous estimate. Sales are expected to be 15% down from the prior quarter. Also, the stock has declined 30.8% in price over the past six months and 58.7% year-to-date.

Therefore, investors should consider a relatively profitable tech stock CEVA, Inc. (CEVA), instead of AMD. The company operates as a leading licensor of wireless connectivity and intelligent sensing technologies, and co-creation solutions worldwide.

“We delivered solid second-quarter results against a challenging macroeconomic backdrop. Our wireless connectivity IP continues to drive our licensing business, which is a cornerstone of the IoT market. We continue to capitalize on our strength in wireless to make inroads to a new customer base and add value via our co-creation business proposition,” said CEVA’s CEO, Gideon Wertheizen.

The company’s cumulative royalty-bearing chip shipments, including CEVA IP, surpassed 15 billion units during the second quarter. The rapid adoption rate of CEVA's IP in the IoT era is a testament to the company's role in democratizing wireless connectivity through the broad licensing of its 5G, cellular IoT, Bluetooth, Wi-Fi, and UWB platform IP to hundreds of OEMs. 

Furthermore, in September, CEVA introduced PentaG-RAN™, the industry’s first 5G baseband platform IP for ASICs targeting cellular infrastructure in the base station and radio configurations. This heterogeneous baseband compute platform is designed to significantly reduce the entry barriers for companies looking to enter the new market opportunities available in Open RAN equipment.

CEVA has gained 4.5% over the past month to close the last trading session at $27.62. Moreover, Wall Street analysts expect the stock to hit $46.75 in the near term, representing a 69% upside potential.

Here is what could influence CEVA’s performance in the upcoming months:

Solid Financials

CEVA’s total revenues came in at $33.20 million for the fiscal 2022 second quarter ended June 30, 2022, up 9% year-over-year. Moreover, its licensing, NRE and related revenues came in at $22.12 million, up 42.4% year-over-year. Also, the company’s total current liabilities came in at $31.59 million as of June 30, 2022, compared to $35.44 million as of December 31, 2021.

Favorable Analyst Estimates

Analysts expect CEVA’s revenue for the fiscal year 2022 (ending December 2022) to come in at $139.88 million, indicating an increase of 14% from the prior-year period. The consensus EPS estimate of $0.78 for the current year indicates a 20.3% year-over-year growth. It's no surprise that the company has topped the consensus EPS estimates in each of the trailing four quarters.

In addition, the company’s revenue for fiscal 2023 is expected to rise 12.7% from the previous year to $157.65 million. Analysts expect the following year’s EPS to grow 24.3% year-over-year to $0.97.

High Profitability

CEVA’s trailing-12-month gross profit margin of 50.33% is 63.2% higher than the 50.33% industry average. Likewise, its trailing-12-month levered FCF margin of 16.79% is 112.3% higher than the industry average of 7.91%.

POWR Ratings Show Promise

CEVA has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. CEVA has a grade of A for Quality, in sync with its higher-than-industry profitability metrics. In addition, it has a grade A for Growth and Sentiment, consistent with its solid revenue and earnings growth estimates.

CEVA is ranked #14 out of 93 stocks in the B-rated Semiconductor & Wireless Chip industry.

Beyond what I have stated above, we have also given CEVA grades for Value, Momentum, and Stability. Get access to all CEVA ratings here.

Bottom Line

CEVA’s revenue and EBITDA have increased at CAGRs of 19.8% and 51.3% over the past three years, respectively. Moreover, analysts are bullish about the company’s revenue and earnings growth prospects as its wireless connectivity IP continues to drive its licensing business.

Given its strong financials, solid revenue and earnings growth estimates, and higher-than-industry profitability, it is wise to invest in this tech stock instead of AMD.

AMD shares were trading at $60.06 per share on Monday afternoon, down $1.95 (-3.14%). Year-to-date, AMD has declined -58.26%, versus a -17.74% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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