Traders seeking to profit from the rising adoption of AI smartphones ought to take into account shopping for this chip inventory whereas it’s nonetheless low-cost.
Shares of Qualcomm (QCOM 2.66%) have loved wholesome good points of over 20% yr thus far, regardless of dropping 20% from the 52-week excessive it hit on June 18.
Nonetheless, there’s a good likelihood this semiconductor inventory may come out of this hunch when it releases its fiscal 2024 third-quarter outcomes on July 31. Let’s examine why which may be the case.
Enhancing smartphone demand may assist Qualcomm submit better-than-expected outcomes
Qualcomm launched its fiscal 2024 second-quarter outcomes (for the three months ended March 24) on Might 1. The corporate’s prime line was flat on a year-over-year foundation at $9.4 billion. Income from the handset enterprise was additionally flat on a year-over-year foundation at $6.2 billion. So, Qualcomm generates practically two-thirds of its income from promoting smartphone chips, which suggests its fortunes are tied to the well being of this market.
The smartphone market wasn’t in nice form final yr as shipments declined 3% on account of poor demand, in line with market analysis agency IDC. Nonetheless, 2024 is popping out to be a greater yr. Smartphone gross sales elevated 7.8% in Q1, adopted by a rise of 6.5% in Q2.
IDC factors out that smartphones outfitted with generative artificial intelligence (AI) options are rising sooner than anticipated, and their shipments are anticipated to hit 234 million items in 2024. Even then, AI smartphones may have numerous room for development as they’re anticipated to account for 19% of the general market this yr.
The stronger-than-expected development in AI smartphone adoption ought to ideally be a tailwind for Qualcomm because it managed 23% of the smartphone processor market on the finish of 2023. Extra importantly, Qualcomm administration identified within the Might (*1*) that it was witnessing sturdy adoption of generative AI smartphones in China with premium units from producers equivalent to Xiaomi, OnePlus, Vivo, and Huawei gaining momentum.
It’s price noting that Xiaomi and Vivo’s shipments elevated considerably final quarter. Whereas Vivo’s smartphone shipments jumped 22% yr over yr, Xiaomi reported 27% year-over-year development. The sturdy leap in shipments recorded by these Chinese language producers bodes effectively for Qualcomm because it has been supplying its AI-focused smartphone chips to them.
The corporate guided for $9.2 billion in income for fiscal Q3 when it launched its earlier outcomes. That would translate into year-over-year development of 9%. Analysts count on Qualcomm to report $2.25 per share in earnings on income of $9.21 billion, which is in step with the corporate’s steerage. Nonetheless, the sturdy development in AI smartphone shipments final quarter may assist Qualcomm beat Wall Road’s outlook.
Extra importantly, Qualcomm can maintain a stronger tempo of development in the long term due to the fast adoption of AI smartphones.
The larger image seems to be brilliant
IDC beforehand forecasted shipments of 170 million AI smartphones this yr. Nonetheless, it has considerably upped its steerage, suggesting that customers are warming as much as this know-how sooner than anticipated.
Shipments of generative AI-enabled smartphones may leap from an estimated 234 million items in 2024 to 912 million items in 2028. That interprets to an impressive compound annual development price of 78% primarily based on 2023’s shipments of 51 million items.
Such development within the AI smartphone market would assist a better-than-expected outlook for Qualcomm in its outcomes subsequent week. As such, there’s a good likelihood this semiconductor inventory may resume its upward climb for 2024.
That’s why now is an effective time to purchase shares of Qualcomm. The inventory is buying and selling at 26 occasions trailing earnings, a reduction to the Nasdaq 100 index’s a number of of 32 (as a proxy for tech stocks). It is probably not accessible at such a beautiful valuation for lengthy.
(*31*)Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Qualcomm. The Motley Idiot has a disclosure policy.