Is Qualcomm the Next Big AI Stock? Analysts Think So

$162.89

-1.59 (-0.97%)

(As of 08/12/2024 ET)

52-Week Range

$104.33

▼

$230.63

Dividend Yield

2.09%

P/E Ratio

21.89

Price Target

$210.63

Qualcomm NASDAQ: QCOM is a well-established tech sector company with a long history of success. While investors might remember the company as a powerhouse during the earliest days of the cellphone era, the company has since shifted its focus to become a leader in the artificial intelligence (AI) sector. Qualcomm has steadily diversified its revenue base to mitigate risk and position itself for long-term growth. For investors looking to gain exposure to the exploding AI sector, Qualcomm presents a compelling investment opportunity. Industry analysts and Qualcomm’s analyst community speculate that the company possesses the potential to become the next “millionaire-maker” stock.

Qualcomm’s Mixed Recent Earnings Report

Qualcomm’s earnings for the third quarter were strong and exceeded analysts’ expectations. In its fiscal third quarter, Qualcomm reported adjusted earnings per share of $2.33 on revenue of $9.39 billion. These figures represented a 25% increase in earnings and an 11% increase in revenue year over year. The company’s performance was driven by solid growth in its automotive sector and Internet of Things (IoT) segments, reflecting its commitment to diversification.

The company’s chipset business, which accounts for 86% of its total revenue, grew 11% year-over-year to $8.1 billion. Handset chip sales rose 12% to $5.9 billion, while automotive chip sales jumped 87% to $811 million. The company’s technology licensing business contributed the remaining portion of revenue.

However, while Qualcomm’s third-quarter results were strong, the company’s guidance for the December quarter, which expects mid-single-digit revenue growth, fell short of what investors hoped for. Qualcomm attributed the shortfall to flat smartphone growth, which is a concern for investors.

These comments sent Qualcomm’s stock price down, demonstrating its sensitivity to even slight changes in expectations. Despite the recent concerns, Qualcomm remains optimistic about its long-term prospects, believing its AI capabilities and diversification strategy will drive growth.

A Look at the Diversified Qualcomm

While Qualcomm might be best known for its role in early mobile phones, the company has since expanded its product portfolio to include connected car technology, IoT applications, and even chipsets for laptops and other devices. Qualcomm’s core business remains as a provider of semiconductor solutions, primarily for mobile phones, but the company has expanded into other sectors, providing a diversified revenue stream. This diversification is a key factor in the company’s long-term growth strategy and has helped to mitigate risks associated with relying on a single market.

The company is a leader in connected car technology, focusing on automotive solutions that power driver assistance, maps, and entertainment. This segment has recently delivered significant growth for Qualcomm and is expected to continue in future quarters. Qualcomm also leads the Internet of Things (IoT) space, creating chipsets that power smart home devices.

Qualcomm is becoming increasingly important in personal computing, with its Snapdragon X Series processor capable of handling generative AI duties directly from the device it powers. This is a significant breakthrough for the AI sector, and it could lead to a new wave of innovation in mobile devices, laptops, and virtual reality (VR) goggles.

The Opportunity Snapdragon’s Been Waiting For

Most consumer-facing AI-powered chat platforms like ChatGPT and Microsoft’s Copilot currently require cloud computing for their operations. Qualcomm’s latest Snapdragon processor is a game-changer, capable of handling generative AI duties directly from the device it powers.

Qualcomm’s Snapdragon X series processor is already being used in Samsung’s Galaxy Z Fold and Flip, Microsoft’s Surface Pro, and other devices. The company is also working on bringing its AI capabilities to other devices, such as laptops, VR goggles, and even automobiles. Sector analysts estimate the AI computing hardware market will likely grow at an annualized pace of 26% through 2029, creating a massive opportunity for Qualcomm.

Is Qualcomm a Millionaire-Maker Stock?

Despite the recent concerns about sluggish smartphone sales, Qualcomm remains optimistic about its long-term prospects. The company believes that its AI capabilities, combined with its strong position in other key tech sectors, will drive significant growth in the future. The company is also taking steps to diversify its revenue base, which is expected to contribute to sustainable growth.

Qualcomm’s size and long-term focus give it an advantage over competitors. The company is also focused on extending its Snapdragon platform, which is key to its success, and adding the protection of new patents along the way.

This suggests that Qualcomm’s stock may have enough upside to make investors millionaires. However, this will require a long-term commitment and investors to weather the company’s short-term headwinds. While Qualcomm’s growth story is not built for rapid growth, it could be a reliable source of growth for investors over the long term.

Investors should be aware of the risks associated with investing in Qualcomm. The company’s dependence on a small number of customers, its exposure to geopolitical risks, and the time lag associated with its diversification strategy could impact its future performance. Ultimately, Qualcomm is a company worth watching closely and could deliver significant returns to investors willing to take a long-term view. 

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