Qualcomm Set for Growth Amid Surging Demand and Market Recovery

Mobile chipset leader Qualcomm (NASDAQ: QCOM) is preparing to announce its Q4 FY’24 results in the upcoming weeks. The company’s shares have climbed about 20% this year, significantly outperforming its semiconductor rival Intel (NASDAQ: INTC), which has seen its stock drop approximately 50% during the same timeframe. Analysts anticipate Qualcomm’s earnings this quarter will reach $2.57 per share, which marks a 25% increase from last year, while revenue could hit $9.95 billion—slight growth over consensus estimates and a 14% increase compared to last year. Recent improvements for Qualcomm have stemmed from a rebound in the smartphone market and growing optimism surrounding generative AI, which is expected to boost chipset sales. Check out our detailed analysis in Qualcomm Earnings Preview for more insights into factors influencing Qualcomm’s quarterly performance.

Smartphone Recovery Boosts Key Market Segment

The smartphone market faced challenges in 2023 due to decreased consumer spending after the COVID-19 pandemic, but new forecasts show promise. Research firm International Data Corporation expects worldwide smartphone shipments to increase nearly 6% in 2024, reaching 1.23 billion units. This is likely to enhance Qualcomm’s CDMA Technologies (QCT) segment, which provides application processors, modems, and software for mobile and consumer electronics. In Q3 FY’24, QCT revenue was $8.1 billion—up 12% from the previous year—and the company projects Q4 revenue between $8.1 billion and $8.7 billion. Notably, Qualcomm’s sales to China surged 50% year-over-year, driven by growing demand for premium Android devices. A recent long-term licensing agreement with Honor is also expected to bolster future sales.

The Rise of Generative AI Fuels Chip Demand

Generative artificial intelligence is sparking increased demand for Qualcomm’s high-end chipsets, particularly the Snapdragon 8 Gen 3, which enhances features like voice assistants and image generation. Investors will be keen to hear updates on Qualcomm’s new Snapdragon X PC chips, which received attention months ago when Microsoft and other PC manufacturers introduced AI-enhanced computers using these processors. Although Nvidia has become well-known as a leader in AI hardware, Qualcomm has outpaced Nvidia in sales growth while maintaining a lower price-to-earnings ratio.

Automotive Sector Shows Strong Growth

Qualcomm’s automotive division is thriving as semiconductors become crucial in the transportation sector, especially with trends in electrification and autonomous vehicles. In Q3, the company recorded $811 million in automotive revenue, marking an impressive 87% annual increase. The content made up of electronics in vehicles is on the rise, comprising 40% of a new car’s total cost compared to just under 20% in 2000, and is predicted to exceed 45% by the decade’s end. Qualcomm is positioned well for continued growth, aiming for over $4 billion in automotive revenue by FY’26, although short-term challenges may arise from a slowdown in car sales and a downturn in the electric vehicle market.

Volatile Stock Performance and Future Outlook

Over the past few years, QCOM stock has generally performed well, benefitting from the generative AI trend and an increase in premium handset sales. However, its returns have been erratic, with a 22% gain in 2021, a decline of 39% in 2022, and a bounce-back of 35% in 2023. By comparison, the Trefis High Quality Portfolio has consistently outperformed the S&P 500 each year, showcasing more stable returns. Investors now wonder if Qualcomm might once again fall behind the S&P 500, similar to its struggles in 2021 and 2022, especially given the current uncertain macroeconomic conditions.

Valuation Insights and Competitive Challenges

Currently, Qualcomm shares are trading at approximately $170, or about 17 times consensus FY’24 earnings—a reasonable valuation considering the smartphone market recovery and Qualcomm’s expansion into the automotive and PC sectors. However, there are concerns about rising competition. For example, Huawei plans to feature its in-house Kirin processors in new smartphones, which might eat into Qualcomm’s sales. Additionally, speculation surrounds Samsung potentially moving away from Qualcomm processors in favor of its own Exynos line. Our valuation estimates Qualcomm at $189, presenting an 11% upside from the current price. For more on the factors influencing our estimates, see our analysis on Qualcomm Valuation: Expensive Or Cheap?

Market Strategy Amid Economic Uncertainty

As investors hope for a smooth transition in the U.S. economy following the Federal Reserve’s monetary easing initiatives, the potential risks of a recession linger. Our dashboard, How Low Can Stocks Go During A Market Crash, reviews how key stocks performed during and after previous market downturns.

[1] Returns as of 10/13/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.