It was clear last fall that Qualcomm (NASDAQ:QCOM), the longtime leader in phone modems, needed a new growth story. Qualcomm stock had a terrible 2023. Sales fell 19% and net income by 43%. CEO Cristiano Amon talked about a “challenging environment.” Phone sales were weak, especially in China. That also dropped licensing revenues.
Apple (NASDAQ:AAPL) also renewed its promise to stop buying Qualcomm modems. The new date for losing that business is 2027.
It seems devices weren’t ready for the AI revolution and consumers held back. Investors took it hard, twice sending Qualcomm stock down to near $100 during the year. Chasing those sweet AI infrastructure profits, the consumer market was left by the roadside.
But with infrastructure building, and applications coming, interest in the consumer side of the AI market is returning. Qualcomm stock is up 38% in 2024 and going higher.
Here’s why.
A Closer Look at Qualcomm Stock
Qualcomm investors are betting it can become a major PC chip supplier. PCs and phones are increasingly similar on the inside. Qualcomm found a partner in ARM Holdings (NASDAQ:ARM).
Qualcomm’s Snapdragon X Elite chips, based on a design licensed from ARM, is winning lots of OEM contracts. With it, Qualcomm hopes to win significant market share against PC incumbents Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD).
Windows PC processors have been a two-horse race for decades. But ARM means to break that. Analysts at CounterPoint believe ARM laptops could have 25% of the market by 2027.
But Qualcomm won’t have this market all to itself. ARM has told analysts it will have multiple chip vendors making a variety of PCs at different price points.
Qualcomm’s move into PCs began in 2021 when it bought a small chip designer named Nuvia. Dell Technologies (NASDAQ:DELL) lists a Qualcomm-based PC among the designs it will release in 2025.
Analysts have called the latest Qualcomm chip “the laptop chip of Intel and Apple’s nightmares.” It has a neural processing unit that can run AI workloads.
Microsoft (NASDAQ:MSFT) will also feature a Qualcomm chip in its next Surface laptop. Microsoft has launched an “ARM advisory service” for developers whose software must support Qualcomm PC chips.
Back at the Ranch
Meanwhile, Qualcomm still has 30% of the market for phone processors. This includes 60-70% of the market for Android processors in phones costing over $300. This should mean some big quarters as China’s Android market returns to growth.
There are, of course, two bearish trends for Qualcomm in the phone market. Apple is one, as it works to make all its chips itself. The other is MediaTek, a Taiwanese company that has 36% of the market, against 23% for Qualcomm.
It should also be noted that Qualcomm is also huge in the auto market. That segment’s growth of nearly 25% helped power Qualcomm to record earnings in the most recent quarter.
The Bottom Line
Qualcomm has been bid to a price to earnings ratio of 25 and a price to sales ratio of 6. This despite numbers that, on the surface, look mediocre.
But AI has been a tidal force in the tech market. Infrastructure caused it to flow out from Qualcomm in 2023. It looks set to flow back in, toward client devices, starting this fall.
Qualcomm should reap at least some of the rewards. While huge PC growth is speculative, it’s not unlikely, given Qualcomm’s strength with ARM OEMs like Dell and HP (NYSE:HP), as well as Taiwanese OEMs like Asus.
The stock is fully priced here, but Qualcomm is well positioned to succeed over the next year.
As of this writing, Dana Blankenhorn had a LONG position in AAPL, INTC, and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
