Believe it or not, old mobile chip giant Qualcomm (NASDAQ:QCOM) has been a hot stock so far in 2024. After taking a hit following the pandemic-era consumer electronics spending spree, stocks have reached all-time highs and have increased by almost 40% so far this year.
There are good reasons for this rise in stock prices. Although the smartphone market likely remains lukewarm, Qualcomm has developed two new consumer markets that are increasing profitability. As a result, the stock could still be fairly valuable right now.
Automobiles are in overdrive and are PCs ready to go?
As I wrote a few months ago, Qualcomm is benefiting from a stabilization of the smartphone market this year. Although sales are far from full growth, Qualcomm’s high-end 5G connectivity chips are bringing in more dollars per unit than in the past (known as average selling price, or ASP). This leads to outperformance of the overall smartphone market for Qualcomm’s revenue.
But there are even better things afoot. After years of stagnation, Qualcomm’s PC business could be about to kick into high gear.
Its Snapdragon X Elite laptop chips arrive this summer. The Snapdragon Microsoft Windows laptops are based on Arm holds designs, the same architecture Apple uses for its high-end MacBook line.
Why is this important? This represents a whole new potential growth market for Qualcomm, which currently reports very few laptop sales. And that’s a very big space for Qualcomm to invade, currently dominated by Intel (NASDAQ:INTC) And Advanced microsystems (NASDAQ:AMD) with their x86 architecture for PC chips. PC chip revenues from Intel and AMD were $7.5 billion and $1.4 billion, respectively, in the first quarter alone.
Suffice it to say, a small market share in the PC sector could lead to another additional growth outlet for Qualcomm, just as its fledgling automotive segment has in recent years.
It’s all about margin
One of the wonderful things about Qualcomm’s business model is that even during severe cyclical downturns for its biggest money maker (smartphones), it remains very profitable. Over the next two years, as consumer spending continues to find solid footing following pandemic-related turmoil and interest rate hikes, Qualcomm’s profit margins will recover.
Another decrease in Qualcomm’s profits was increased investment in the PC and automotive chip businesses. As the company begins to see greater sales from these development efforts, it will also increase profit margins.
To be clear, Qualcomm won’t be the fastest growing semiconductor company. But if higher ASPs on smartphone chips and new growth opportunities like Windows laptops and automotive chips come into play, it’s not unreasonable to expect average earnings per share (EPS) growth ) of the order of adolescence for the next few years.
At 27 times trailing 12-month EPS, or 18 times free cash flow, Qualcomm still seems like a great value to me.
Should you invest $1,000 in Qualcomm right now?
Before buying Qualcomm stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Qualcomm wasn’t one of them. The 10 selected stocks could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $635,982!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
See the 10 values »
*Stock Advisor returns May 13, 2024
Nicholas Rossolillo and his clients hold positions at Advanced Micro Devices, Apple and Qualcomm. The Motley Fool holds positions and recommends Advanced Micro Devices, Apple, Microsoft and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short $47 calls in May 2024 on Intel. The Motley Fool has a disclosure policy.
Why Qualcomm Stock Could Still Be Great Value Now was originally published by The Motley Fool
yahoo
