SoftBank’s Masayoshi Son Says Nvidia Stock Is Undervalued. Here’s Another Artificial Intelligence (AI) Stock I Think Is a Better Cut price.

In my eyes, probably the most important piece of infrastructure powering synthetic intelligence (AI) is semiconductors. From storage to reminiscence, quantum computing, machine studying, and a host of different generative AI purposes, semiconductors symbolize the spine supporting the broader AI thesis.

In case you’ve been following chipmakers during the last couple of years, then you can see it no shock that Nvidia (NVDA 4.89%) has emerged as probably the most influential firm within the AI realm. And but regardless of its shares gaining 752% in simply the final two years, famed investor Masayoshi Son of SoftBank just lately proclaimed that Nvidia stock is undervalued.

Son’s logic was that the overall addressable market (TAM) for generative AI is anticipated to witness sturdy progress over the following a number of years. Not solely is that this an apparent tailwind for Nvidia, however the firm’s industry-leading roster of graphics processing models (GPU) structure separates it from the competitors in a appreciable approach; due to this fact, Nvidia may very well be capable to purchase the vast majority of incremental market share that Son is projecting. Ought to this be the case, Nvidia inventory appears like a no-brainer.

Whereas Son may very well be right, I’m not permitting Nvidia’s dominance to overshadow different alternatives within the chip area. Under, I’m going to element why I see Qualcomm (QCOM 0.13%) as a substitute for investing in Nvidia, and one which I suppose is a higher alternative proper now.

Qualcomm is quietly rising as an AI star

Though Qualcomm is a semiconductor firm, its underlying enterprise is sort of completely different to that of Nvidia. Nvidia focuses on making GPUs which are used for generative AI growth. Against this, Qualcomm’s Snapdragon structure is primarily targeted on powering cellphones and even Internet of Things (IoT) units.

For the corporate’s fiscal 12 months (ended Sept. 29), Qualcomm generated $38.9 billion in income — up simply 9% 12 months over 12 months. Whereas this degree of progress may appear uninspiring, understand that Qualcomm has spent the last several quarters in turnaround mode — underscored by cost-cutting efforts and reigniting progress in its core handsets (cellphone) enterprise.

In my eyes, Qualcomm’s efforts are beginning to bear fruit. Whereas income solely grew within the low single digits throughout the first half of fiscal 2024, Qualcomm demonstrated a powerful turnaround within the second half as gross sales rose by 11% throughout the third quarter and by 19% within the fourth quarter.

On prime of that, Qualcomm’s web earnings and earnings per share (EPS) each elevated by 40% 12 months over 12 months in fiscal 2024. I’ll take mundane income progress in alternate for this degree of profitability progress any day. And what’s even higher is how Qualcomm can be allocating a few of this newfound revenue.

Picture supply: Getty Photos. 

15 billion causes to like Qualcomm inventory proper now

As a part of its latest earnings report, Qualcomm’s administration introduced that the corporate’s board of administrators accepted a $15 billion stock buyback program. I like this concept, and I discover this transfer as an attractive strategy to deploy a few of the firm’s extra money move in a approach that rewards shareholders.

Is Qualcomm inventory a purchase proper now?

Within the chart under, I’ve benchmarked Qualcomm towards a peer set of different semiconductor shares utilizing the forward price-to-earnings (P/E) a number of. I see the ahead P/E as a helpful benchmark as a result of it could possibly assist point out how a firm’s outlook is perceived relative to its friends. With a ahead P/E of simply 14.3, traders look like inserting a appreciable low cost on Qualcomm’s progress prospects when in comparison with a lot of its cohorts.

QCOM PE Ratio (Forward) information by YCharts

Essentially talking, the valuation developments illustrated within the chart would counsel that Qualcomm may very well be seen as an undervalued alternative among the many broader semiconductor inventory panorama. While you mix the brand new $15 billion share repurchase program on prime of those developments, I are inclined to suppose that Qualcomm’s administration sees this dynamic and believes the inventory is undervalued.

Whereas Son’s evaluation of Nvidia’s potential may very well be correct, I see Qualcomm inventory as a extra compelling alternative proper now given its valuation disparity in comparison with friends. To me, Qualcomm is buying and selling at a cut price and I suppose the inventory is a no-brainer proper now for traders with a long-term time horizon.