Traders trying 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 positive factors 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 might 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 might assist Qualcomm put up better-than-expected outcomes
Qualcomm launched its fiscal 2024 second-quarter outcomes (for the three months ended March 24) on Could 1. The corporate’s high 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 almost 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 response to 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 geared up with generative synthetic intelligence (AI) options are rising quicker than anticipated, and their shipments are anticipated to hit 234 million items in 2024. Even then, AI smartphones can 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 Could earnings name that it was witnessing robust adoption of generative AI smartphones in China with premium units from producers corresponding to Xiaomi, OnePlus, Vivo, and Huawei gaining momentum.
It’s value 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 robust soar 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 might 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 robust development in AI smartphone shipments final quarter might assist Qualcomm beat Wall Avenue’s outlook.
Extra importantly, Qualcomm can maintain a stronger tempo of development in the long term due to the speedy adoption of AI smartphones.
The larger image seems to be shiny
IDC beforehand forecasted shipments of 170 million AI smartphones this yr. Nonetheless, it has considerably upped its steerage, suggesting that buyers are warming as much as this expertise quicker than anticipated.
Shipments of generative AI-enabled smartphones might soar 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% based mostly on 2023’s shipments of 51 million items.
Such development within the AI smartphone market would help a better-than-expected outlook for Qualcomm in its outcomes subsequent week. As such, there’s a good likelihood this semiconductor inventory might resume its upward climb for 2024.
That is 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 shares). It will not be out there at such a horny valuation for lengthy.
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 coverage.
