For much of 2023, there was much skepticism about Qualcomm’s (NASDAQ:QCOM) potential as an AI play. However, over the past six months, this has changed dramatically. At least, based upon the performance of QCOM stock during this time frame.
Since late September, shares in the mobile chip maker have surged by more than 52%. With this rapid move higher, you may think you’ve missed the boat.
You may think that, following the surge, the potential AI catalyst has gone from being barely factored to overly factored in QCOM’s valuation.
Fortunately, much points to these concerns being unfounded. Taking into account both the latest AI-related news for Qualcomm, plus other factors like valuation, not only is the AI catalyst getting stronger. Significant long-term runway remains for shares.
QCOM Stock and the UXL Consortium
Nvidia (NASDAQ:NVDA), the early-mover among semiconductor companies, has and continues to dominate the AI chip market.
Yet while Nvidia remains well-positioned to maintain a significant lead against the competition, several big names in tech are teaming up, to built what could be, for lack of a better phrase, a “Nvidia killer.”
I’m talking about the UXL Consortium. Per a Reuters exclusive that dropped on March 25, Qualcomm, along with Google parent Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Intel (NASDAQ:INTC), have partnered up to form this consortium, which seeks to develop an alternative to Nvidia’s CUDA software platform.
Admittedly, this isn’t an immediate game-changer for QCOM stock. Hence, explaining why shares didn’t surge on this news right away.
However, in the years ahead, Qualcomm’s involvement with the UXL could pay off in a big way, especially with regards to the company’s big move into the AI-PC chips space.
If this isn’t enough of a promising development, keep in mind something else. Well before it becomes clear when or if the UXL Consortium will benefit Qualcomm, existing catalysts could propel shares to even higher prices. These include both AI and non-AI catalysts alike.
Plenty More Room for Multiple Expansion
Despite the super surge for QCOM stock, shares remain more than reasonably-priced, at 17.5 times forward earnings. This represents a significant discount to many of the other top AI chip plays. Even Intel, at 31.4 times forward earnings, sports a more premium valuation.
The market discounts Qualcomm for solid reasons, which include uncertainty over AI chip investment and the recovery of mobile chipset demand. In the months ahead, however, subsequent developments could convince an even greater number of investors to switch from a “show me” to a bullish stance.
Why? First, as Seeking Alpha commentator JR Research argued last month, results for both Qualcomm’s mobile chipset and internet of things businesses could continue to improve throughout the current fiscal year ending September 2024.
QCOM could rise in tandem with better-than-expected FY2024 results, as well as on upward revisions to FY2025 forecasts. Second, AI-related developments in the coming months could strengthen confidence in this growth catalyst even further.
This in turn may result in multiple expansion for QCOM. Even a moderate re-rating could mean a big jump for shares.
Bottom Line: There’s Still Time to Grab a Position
Sell-side forecasts range widely for Qualcomm shares today. Analyst consensus currently calls for earnings growth of around 10% annually over the next two fiscal years. However, the top end of estimates call for QCOM’s earnings to rise at an even more rapid pace.
For instance, earnings could hit $15 per share or more as soon as next fiscal year. Again, hitting these estimates hinges on the company’s success in capitalizing on the generative AI trend. However, if successful, the upside could be tremendous.
It may not take much to get this $170 per share QCOM up to between $300 and $375 per share. For this to happen, all it may take is $15 per share earnings, and a market re-rating to between 20 and 25 times earnings.
With this, plus the recent positive news, the takeaway is clear. There’s still time to grab a position in QCOM stock.
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.
