Qualcomm (NASDAQ:QCOM) has several, strong, positive, medium-and long-term catalysts. Moreover, the valuation of Qualcomm stock is quite low. In light of these points, I view the shares as a buy for some investors.
Automotive Chips and AI-Powered Smartphones
Two of Qualcomm’s biggest, upcoming positive catalysts will be the inclusion of artificial intelligence (AI) chips in many smartphones and the proliferation of semiconductors in vehicles.
In a note to investors on May 31, Japanese bank Mizuho raised its price target on QCOM stock to $240, well above the shares’ current levels of around $210. Mizuho expects the company to benefit from increased utilization of its highly advanced Snapdragon 8 Gen 3 chip which enables on-device AI in handsets. Mizuho kept a “buy” rating on the shares.
Qualcomm has invested in providing a variety of AI applications for mobile device users. Specifically, it reported on May 1 during its fiscal second-quarter earnings call that it recently launched the Qualcomm AI Hub, The Hub incudes “100 pre-optimized AI models” that enable ” four times faster inferencing” than competing devices, the firm’s vice president of investor relations Mauricio Hodoyan told analysts.
Tech research firm IDC estimated that the worldwide automotive semiconductor market would jump from $67.44 billion in 2023 to $76.74 billion in 2025 and $80.256 billion in 2026. Meanwhile, Nvidia‘s (NASDAQ:NVDA) revenue from automotive chips climbed 17% last quarter versus the previous quarter to $329 million.
Qualcomm’s auto-chip business is also rapidly growing as its revenue from the space last quarter jumped 35% versus the same period a year earlier. What’s more, the company’s automotive design pipeline amounted to a huge total of $45 billion as of May 1. That represents a 50% increase versus September 2022.
Android’s Growing Global Strength
Qualcomm is well-positioned to benefit from growing demand for Android phones in China and the growing, worldwide strength of Samsung. Investment bank Oppenheimer and Mizuho both agreed recently that Qualcomm was getting a boost from Android’s recent strength in China. Another investment bank, Raymond James, predicted that Qualcomm would benefit from “modest” growth in the number of smartphones that utilize its chips during the rest of this year.
According to Qualcomm CEO Cristiano Amon, more than 70% of Samsung’s handsets use Qualcomm’s chips. And Samsung’s S24 shipments increased 35% this year compared to the number of S23 handsets that it had shipped in the previous year. That gain helped enable the South Korean smartphone maker to send out 60 million devices last quarter, making it the world’s top handset maker.
Meanwhile, Qualcomm has teamed up with startup Ampere Computing to develop power-saving, cloud-based AI chips. Considering that there are real doubts about whether there will be sufficient electricity to provide the power that data centers need over the medium-to-long-term, the demand for power-saving chips should be quite strong going forward.
Qualcomm Stock Valuation and the Bottom Line
Given all of its powerful, positive catalysts, Qualcomm has a rather low forward price-earnings ratio of 18.4 times. Moreover, the shares have a very high Composite Rating of 94 out of 99 from Investor’s Business Daily, indicating that they’re well-positioned to climb over the longer term. And the website gives Qualcomm a rather high Accumulation/Distribution rating of B+, suggesting that institutional investors have bought significant amounts of the shares over the past 13 weeks. In light of these points, I view the stock as a buy for conservative investors looking for increased exposure to Big Tech names.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
