Qualcomm's Future: A Promising Outlook in the AI and Mobile Chip Market

Where Will Qualcomm Stock Be in 3 Years? | The Motley Fool

An AI-fueled recovery in the smartphone market could boost this chipmaker's prospects over the next three years. The past three years have been disappointing for Qualcomm (QCOM -1.64%) investors: Shares of the semiconductor specialist have gained just 8% as compared to the 36% gains clocked by the PHLX Semiconductor Sector index over the same period. That's not surprising given the weakness in the smartphone market during this interval. Sales of smartphones fell from 1.54 billion units in 2019 to 1.36 billion units the following year. The market didn't witness much growth through 2023 -- shipments came in at 1.34 billion units last year. Given that Qualcomm got 62% of its revenue in the previous quarter from selling smartphone chips, it is easy to see why the stock has underperformed the broader market in recent years. However, will the next three years bring about a turnaround in Qualcomm's fortunes, especially considering that the company has a new catalyst in the form of artificial intelligence (AI)? Let's find out. The weakness in the smartphone market has weighed down Qualcomm's top-line growth in the past three years. This is evident from the chart below. However, Qualcomm's results for the third quarter of fiscal 2024 (which ended on June 23) suggest that its fortunes are turning around. The chipmaker's quarterly revenue increased 11% year over year to $9.4 billion, while its adjusted earnings jumped 25% from the prior-year period to $2.33 per share. Wall Street would have settled for $2.25 per share in earnings on revenue of $9.2 billion. Even better, Qualcomm's guidance turned out to be more optimistic than analysts' expectations. The company is expecting $2.55 per share in earnings on revenue of $9.9 billion in the current quarter. That's better than consensus expectations of $2.45 per share on revenue of $9.69 billion. Qualcomm's guidance indicates that its revenue is set to increase 14% year over year, which would be an improvement over its performance in the previous quarter. Meanwhile, bottom-line growth would come in at 26% as per the midpoint of Qualcomm's guidance. Still, investors pressed the panic button following Qualcomm's results after the company hinted that the recovery in the smartphone market won't be rapid. CEO Cristiano Amon pointed out on the latest earnings conference call that the smartphone market could clock "kind of flattish to low single digits in growth." This seems to have caused some disappointment among investors; Qualcomm stock fell more than 5% after its earnings release. However, investors would do well to look at the bigger picture. The growth of the AI-enabled smartphone market should ideally allow the company to sustain its newly found growth momentum. Though the overall growth of the smartphone market may not be very attractive, as Amon's comments indicate, he did point out that premium smartphones are growing at a faster pace. Additionally, the Qualcomm CEO remarked that the demand for AI-enabled smartphones is playing a central role in driving demand for premium devices. That's not surprising, since shipments of generative-AI-enabled smartphones are expected to grow by 4x between 2024 and 2027, according to Counterpoint Research. Even then, the market for AI smartphones will have more room for growth. That's because generative-AI smartphones are expected to account for 43% of global smartphone shipments in 2027 as compared to 11% this year. Given that the AI smartphone market is currently in its early phases of expansion, Qualcomm could be at the beginning of a terrific growth curve that could lead to healthy gains in the company's top and bottom lines over the next three years. Qualcomm is likely to end the current fiscal year with revenue of $38.6 billion based on the revenue it has generated in the first nine months and the guidance it has issued for the current quarter. That would be a jump of 8% from the year-ago period. However, its fiscal 2025 revenue growth is likely to land in the double digits at just over 10%. As Qualcomm's latest results and the guidance for the current quarter indicate, it could do better than that considering the acceleration that the company is forecasting in its growth and the healthy secular opportunity it is sitting on in the form of AI smartphones. The company is now clocking 20%-plus earnings growth, which is much faster than the 11% annual earnings growth that analysts are forecasting Qualcomm could deliver over the long run. Assuming the company can clock even a 15% annual earnings growth rate over the next three years, its bottom line could increase to $15 per share (using its fiscal 2024 earnings estimate of $9.90 per share as the base). Multiplying that with Qualcomm's current price-to-earnings ratio of 23 means that it could trade at $345 per share after three years. That would be double Qualcomm's current stock price. It is worth noting that Qualcomm stock is a value play if we consider that the Nasdaq-100 has an earnings multiple of almost 31. Investors, therefore, are getting a solid deal on this semiconductor stock, which could deliver healthy gains over the next three years, and they should consider grabbing this opportunity with both hands while the company remains undervalued.

This Incredibly Cheap Artificial Intelligence (AI) Stock Could Be About to Go on a Bull Run | The Motley Fool

A jump in sales of AI-enabled smartphones could turn out to be a catalyst for this chip supplier. Artificial intelligence (AI) is having a positive impact on multiple industries across the globe, and the smartphone market is one of them. The advent of generative AI has started giving smartphone sales a nice lift following a difficult couple of years when shipments fell. The smartphone market contracted 11% in 2022, which was followed by a 3.2% decline last year. This explains why shares of Qorvo (QRVO), a noted supplier of smartphone chips to Apple, remained nearly flat for the past couple of years. However, Qorvo's latest results suggest that its fortunes on the stock market could start changing for the better later this year. Let's take a closer look at Qorvo's recent quarterly results and find out why buying this semiconductor stock right now could turn out to be a smart move. Qorvo released fiscal 2025 first-quarter results (for the three months ended June 29) on July 30. The company's revenue jumped 36% year over year to $887 million, while non-GAAP earnings shot up to $0.87 per share from $0.34 per share in the same period last year. Analysts would have settled for $0.71 per share in earnings on revenue of $852 million. Investors should note that Apple is Qorvo's largest customer, accounting for 46% of its business last year, while Samsung was responsible for 12% of Oorvo's revenue. While one of them is already dominating the generative AI-enabled smartphone space, the other one is expected to jump into this market very soon. More specifically, Samsung's Galaxy S24 devices held the first three spots in the list of best-selling generative AI smartphones in the first quarter of 2024 with a market share of just over 58%. Qorvo management pointed out on the company's latest earnings conference call that it has "got excellent dollar content in that and they had a pretty nice ramp." This probably explains why Qorvo delivered robust year-over-year growth in the previous quarter. And now, Apple could give Qorvo a shot in the arm in the closing stages of 2024. That's because Apple's upcoming iPhone models, which could be released next month, are expected to be AI-capable. The tech giant recently revealed that it has developed a set of AI-focused features, known as Apple Intelligence, and they are expected to find their way into the new generation of iPhones. Apple's launch of an AI-focused iPad in May this year led to a healthy year-over-year increase of almost 24% in its iPad revenue last quarter. It won't be surprising to see something similar happening with the iPhone line as well, especially considering that generative AI smartphone shipments could grow at a stunning annual rate of 78% through 2028. Apple's move into the generative AI smartphone market with its new iPhone lineup could unlock a new growth opportunity for the company and revive interest in a product that turned in a flat sales performance last quarter. Bloomberg, for instance, is expecting AI to lift iPhone sales by 10% in the second half of 2024 from the previous year. This bodes well for Qorvo as it seems to be on track to gain more content in Apple's products. On the recent earnings conference call, CEO Robert Bruggeworth remarked: Turning to mobile, which is primarily smartphones and tablets, our largest opportunity remains at our largest customer. We are investing in multiple multiyear programs to increase our content and continue to grow revenue with this customer. R&D investments for future programs include products we currently supply this customer as well as new products we are not currently supplying. This probably explains why analysts have increased their revenue expectations from Qorvo of late. Qorvo's improving top-line growth prospects are expected to filter down to its bottom line as well. This is evident from the following chart, which tells us that the company is expected to deliver healthy earnings growth over the next couple of fiscal years. Qorvo is currently trading at just 16.4 times forward earnings, which is a nice discount to the Nasdaq-100 index's forward price-to-earnings multiple of 28 (using the index as a proxy for tech stocks). Assuming that it can indeed clock $10.17 per share in earnings after a couple of years and continues to trade at an attractive 16.4 times earnings at that time, its stock price could hit $167 in the long run. That points toward a 54% jump from current levels. However, if the market decides to reward Qorvo with a higher earnings multiple on account of its AI-driven growth, this chip stock could deliver much healthier gains in the long run. That's why investors looking to add a cheaply valued AI stock to their portfolios would do well to take a closer look at Qorvo before it goes on a bull run.