Stocks to buy

Why QCOM Stock Is the Conservative Investor’s AI Dream Play

Qualcomm (NASDAQ:QCOM) is well-positioned to benefit from the proliferation of localized artificial intelligence, the increased digitalization of automobiles, and the rapidly increasing sales of Samsung smartphones. Over the longer term, QCOM stock could also get a considerable boost from Apple’s (NASDAQ:AAPL) renewal of its modem deal with the chip maker.

Finally, Qualcomm recently reported encouraging quarterly financial results, and the valuation of QCOM stock is relatively low.

Given all of these points, I believe that investors looking for a conservative, long-term play on AI should consider buying QCOM stock.

A Good Play on Edge AI and the Increased Computerization of Autos

As I noted in a previous column, “Edge AI devices are connected to the internet and have their own AI rather than relying on distant data centers and the cloud (for AI capabilities).” And by using their own AI chips, these devices are able to process workload significantly more quickly and provide many more applications than systems that rely on cloud-based AI.

Among the apps enabled by devices with their own AI capabilities are “facial recognition and real-time traffic updates.” Edge AI devices also can assist healthcare practitioners more effectively than systems that use datacenters’ AI chips.

In October, QCOM stock introduced new AI chips for PCs and smartphones. Given the firm’s decades of experience with providing cutting-edge chips for smartphones and PCs, I’m confident that QCOM will benefit significantly from what I see as the coming proliferation of Edge AI.

Meanwhile, in January, QCOM stock reported that it was developing hardware that would enable autos to exploit AI. Noting that its Snapdragon Digital Chassis, has been installed in over 350 million vehicles, the firm estimated that its “automotive-related revenue” would reach $4 billion “by 2026,” Seeking Alpha reported.

With autos becoming increasingly more computerized and AI likely to become significantly more advanced over the medium term and the long term, I think that many automakers will look to incorporate a significant amount of the technology into their products in the coming years. The latter trend, in turn, should meaningfully lift Qualcomm and QCOM stock.

Help From Samsung and Apple Is on the Way

In a note to investors on March 11, investment bank Rosenblatt Securities reported that the deliveries of Samsung’s Galaxy S24 had risen 13% compared with those of its predecessor, the S23, during the same period a year earlier. Moreover, the shipments of the Galaxy S24, which incorporate Qualcomm’s Snapdragon 8 chip, were 47% above the rate at which the S22 was delivered two years ago, Rosenblatt stated.

Meanwhile, after Apple reportedly had difficulty creating its own modem chips, Qualcomm reported at the end of January that the iPhone maker had agreed to buy Qualcomm’s modem chips for another two years, through March 2027. The Street is likely still upbeat about the latter news.

Moreover, I believe that ,given Apple’s past struggles with building its own modem chips, we can expect to see the tech giant eventually further extend its contract with Qualcomm in this area.

Strong Quarterly Results and an Attractive Valuation

In QCOM’s fiscal Q1 which ended on Dec. 24, the firm’s earnings per share jumped 24% versus the same period a year earlier to $2.46, while its top line rose 5% year-over-year to $9.9 billion.

Also noteworthy is that its smartphone revenue rose 16% YOY, while its automotive revenue soared 31% YOY to a record $598 million.

In terms of valuation, the stock’s forward price-earnings ratio of 17.6 times is rather low and attractive, given its strong, positive catalysts.

Moreover, the shares have a significant dividend yield of 1.9%.

Qualcomm’s high current profitability, along with its well-established smartphone business and attractive valuation, make it a good AI play for conservative investors.

On the date of publication, Larry Ramer 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.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

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