Most desktop and laptop computers use Intel (NASDAQ:INTC) processors, while Nvidia (NASDAQ:NVDA) chips power many AI platforms. However, Qualcomm (NASDAQ:QCOM) remains dominant for its smartphone technology, Bluetooth headsets, and WiFi chips. As a result, investors are jumping on Qualcomm stock.
Its Snapdragon mobile processor has the capacity to handle generative AI tasks on smartphones, creating an innovation from cloud-based AI. Indeed, Qualcomm is a top chip maker, which means it focuses more on mobile applications (AI included). It could explode as we enter a new era of innovation in this space.
Qualcomm stock has performed very well as a result of its apparent growth potential in these areas. Impressively, QCOM stock has seen a 38% year-to-date increase in 2023 and 150% growth over five years. In Q2 FY24, revenue grew 1% year-over-year, and net income rose 37% year-over-year, prompting a dividend hike to $0.85 per share.
Despite a price-earnings ratio of 26-times, which is lower than typical semiconductor stocks, Qualcomm offers a 1.8% dividend yield. Its Snapdragon Digital Chassis is expected to generate $4 billion annually by FY26, marking a third consecutive quarter of record auto revenue.
Stock Price Target Raised
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On Friday, JPMorgan raised Qualcomm’s price target from $185 to $235, maintaining an Overweight rating. They cited expected AI-driven growth in smartphones and PCs, robust automotive sector expansion, and a potential cyclical recovery in smartphone and PC markets as key factors for sustained double-digit revenue growth into FY25 and beyond.
JPMorgan’s extended model to FY27 projects Qualcomm’s consistent double-digit revenue growth, excluding Apple. Strong growth drivers include double-digit in handsets, which could see a 30% increase.
Moreover, computer-related revenue is expected to reach $3.7 billion in FY2027. These estimates can boost QCOM’s valuation, increasing its valuation over time as the company’s earnings grow. Currently, I think the company’s fundamentals support a $235 price target by December 2025.
Improved Quarter Results
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Qualcomm’s impressive Q2 2024’s numbers highlighted a revenue of $9.4 billion, with handset revenue coming in at $6.2 billion. The company has been relying heavily on smartphone chip sales, accounting for more than half of its revenue. Despite a 3% decline in smartphone shipments last year, 2024 saw improvement with Q1 sales up 7.8% and Q2 sales up 6.5%.
IDC reported AI smartphone shipments could reach 234 million units in 2024, 19% of the market. Qualcomm, with 23% market share in 2023, benefits from this trend. Solid AI smartphone adoption in China could boost Qualcomm stock since it supplies companies like Vivo and Xiaomi with AI chips.
The company now expects a $9.2 billion in Q3 revenue, with a 9% increase year-over-year. This aligns with analyst projections of $2.25 earnings per share. The increasing number of AI smartphone shipments now helps Qualcomm surpass forecasts and sustain growth in the long term.
QCOM Stock Still Looks Like a Buy
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Qualcomm has clearly capitalized on AI’s rise in the smartphone market. While smartphone sales declined last year, IDC forecasts 4% growth this year, with 100 million AI smartphones shipped. The market for generative AI smartphones is expected to increase 83% every year through 2027.
As one of the leading names in the smartphone chip market, Qualcomm did have a bumpy ride in 2023. However, the path forward looks promising. Qualcomm rebounded in 2024 due to its Snapdragon chips and running AI apps, aligning with other big tech generative AI offerings. Qualcomm stock remains a solid tech investment for both capital appreciation and dividend income.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Chris MacDonald 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.
