Is Qualcomm the Chip Stock You Need to Own Right Now?

Stocks to buy

A potential future trillion-dollar company, Qualcomm (NASDAQ:QCOM) has seen impressive interest this year. The company’s strong performance this year has been driven by its AI-powered Snapdragon processors, which work for PCs, gaming, smartphones, and automotive models. Despite the stock seeing a 20% drop over the past month and concerns regarding the U.S. economy, Qualcomm may rebound due to strong handset sales and an advantage in automotive.

Known more as a semiconductor play, Qualcomm also supports different Internet of Things applications like smart home technologies and automotive systems. Its Snapdragon processors and 5G modems drive are renowned across different sectors. Wall Street estimates that the company will reach double-digit growth through 2027.

Although the company has put forward aggressive growth estimates, Qualcomm remains undervalued, trading at 15.6x its forward earnings guidance. 

Qualcomm is recovering very well after its 2023 fiscal with strong revenue and earnings. The company could be a solid long-term investment, especially if shares become more affordable before 2024 ends.

Robust Financials

Qualcomm impressed the market with its successful June quarter. Adjusted earnings per share came in at $2.33, revenue reached $9.39 billion, and the company’s net income surged to $2.13 billion. Qualcomm expects to report around $10.3 billion in revenue for the current quarter, slightly above Wall Street estimates of $9.71 billion. The company’s smartphone processors segment, its strongest segment, typically sees slower sales in the summer.

Notably, handset sales increased 12% to $5.9 billion this past quarter, signaling a recovery in smartphone sales could continue. Qualcomm highlighted its advanced Snapdragon chips as crucial for “AI smartphones” like Samsung’s latest models. CEO Cristiano Amon noted that AI has boosted demand in the premium market segment, growing faster despite overall stagnation.

While still a smaller revenue stream, automotive chips saw an 87% rise to $811 million, surpassing analyst expectations of $641.7 million and representing a key growth area for Qualcomm.

Snapdragon X Elite Mini

Qualcomm’s recently launch of the Snapdragon Dev Kit, a mini PC designed for developing Windows applications and AI experiences, offers an affordable alternative to the Apple (NASDAQ:AAPL) Mac Mini. Primarily aimed at developers, this PC supports building, testing, and optimizing apps using the Arm64 toolchain, including Visual Studio and VS Code, while enhancing CPU, GPU and NPU performance.

The Qualcomm Snapdragon X Elite platform isn’t recommended for gaming due to subpar performance and compatibility compared to x86 gaming laptops. However, it still offers a usable Windows 11 experience and runs productivity and creative applications smoothly. It could be a suitable Mini PC option for professionals focused on developing or improving Windows on Arm games.

The Snapdragon Dev Kit, priced at $899.99, is the most affordable in the Snapdragon X series. It’s cheaper than the Surface Pro 11, which costs $989. Measuring 8x7x1.3 inches and weighing 970g, the Dev Kit is available only through Arrow. It features a black shell made from 20% recycled ocean plastic.

Investors Are Betting on QCOM

Analysts have voiced concerns about Qualcomm’s handset sales and slow AI smartphone adoption. Oppenheimer’s Rick Schaeffer cast doubts on AI’s ultimate impact on Qualcomm’s future growth, while Susquehanna’s Christopher Rolland found the core market weaker than expected but maintained a $250 price target. UBS’s David Vogt anticipated minimal iPhone revenue growth. Moreover, the company saw a $200 million quarter earnings hit from the Huawei ban.

That said, it’s clear that some investors are starting to look at this stock, given its recent decline and strong performance up until the company’s recent earnings report. If Qualcomm can continue gain steam and see real and meaningful impacts from growth in AI, this is a relatively overlooked stock I think could be attractive for long-term investors.

On the date of publication, Chris MacDonald did not have (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.

On the date of publication, the responsible editor held a long position in AAPL.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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