Qualcomm’s (NASDAQ:QCOM) exposure to the boom in generative AI-compatible chips is an important factor to consider in any QCOM stock analysis. Yet while “AI mania” has played the lead role in driving QCOM’s nearly 40% move higher over the past six months, that’s not to say it is the sole factor backing up the bull case for shares.
There are additional positive factors. Both are related to the company’s (for lack of a better word, “legacy”) businesses, and have little to do with the AI growth trend. Both could also help sustain the recent rally, enabling this stock to not only re-hit its 2021 bull market high-water mark, but climb to even loftier price levels.
Qualcomm Stock: A Solid AI Contender, but Patience is Key
There’s a lot to be optimistic about, with Qualcomm’s potential to capitalize on the generative AI growth trend. For one, the company has started to integrate AI features into its Snapdragon system-on-a-chip smartphone platform. As announced last fall, Qualcomm also has plans to unveil an AI chip for PCs this year.
Yet while all of this makes the chip designer a solid AI contender, it’s going to take time for AI to have a material impact on its operating performance. Unless the latest wave of “AI mania” continues, consider it best to assume in your QCOM stock analysis that this factor will not provide much of a further boost of shares.
At least, until the rollout of AI-enabled products begins to move the needle for the company’s top and bottom lines. That said, shares are not destined to cough back AI-related gains and then languish at lower prices. As mentioned above, Qualcomm also has strong non-AI catalysts.
These catalysts could either extend the recent rally for QCOM. Or, if an AI stock sell-off leads to a near-term pullback/correction for shares, help QCOM get back on an upward trajectory.
Don’t Discount Handset and IoT Recovery Catalysts
Before appreciation of QCOM’s AI potential came on the scene, the tech sector slowdown hit shares hard, especially by the slowdown in global smartphone demand. However, as seen in Qualcomm’s latest quarterly results, demand for the company’s products for the handset (smartphone) market seems to be normalizing.
During the preceding quarter, handset sales increased by 16% compared to the prior year’s quarter. A recovery for the company’s internet of things business could also take shape, based on statements made by CEO Cristiano Amon, in an interview with Bloomberg Television around the time of the earnings release.
Yes, the recovery for both these businesses may come at a slow pace. However, that doesn’t mean we should discount the impact of this recovery catalyst in our QCOM stock analysis. Incremental performance improvements in Qualcomm’s largest and second-largest segments could still drive incremental gains for shares.
Even after all the supposed “AI hype,” the stock remains reasonably priced, QCOM today trades for 15.8 times forward earnings. With the recovery not priced in, shares are well-positioned to move in tandem with an earnings rebound. There may even be room for multiple expansion.
QCOM Stock Analysis: The Bottom Line
The sell-side community doesn’t expect a growth bonanza ahead for Qualcomm. Yes, consensus calls for earnings to bounce back by nearly 50% this fiscal year (ending September 2024).
However, for the next fiscal year, consensus forecasts call for earnings growth of just 10.6%. Based on the factors discussed above, future results may end up handily beating these expectations.
Better-than-expected growth plus perhaps other factors like a continued extension of its modem supply agreement with Apple (NASDAQ:AAPL), may enable shares to re-rate back to a low-20s forward multiple. That’s what the stock traded for just a few years ago.
A move to prices north of $200 per share is well within reach. Thus, for the latest QCOM stock analysis, here’s the bottom line: at around $150 per share today, it’s still well worthwhile to wager on a continued recovery.
On the date of publication, Thomas Niel 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.
