Qualcomm reports third-quarter results, highlights AI and automotive businesses

Major mobile chipsets Qualcomm Inc. (NASDAQ: QCOM) Qualcomm is scheduled to report its third-quarter fiscal 2024 results later this month. The company's stock price has risen 45% since the beginning of the year, outperforming semiconductor giant Intel, which has plummeted about 30% over the same period. Qualcomm expects quarterly profit of $2.25 per share, up about 20% from last year, and revenue of $9.25 billion, slightly above consensus estimates and up about 9% from last year. Factors driving the company's recent rise include a recovery in the smartphone market and optimism that trends in generative AI will help chipset sales. Qualcomm Earnings Preview Let's take a closer look at the trends driving Qualcomm's bottom line.

The smartphone market took a lull in 2023 but has recently picked up as the COVID-19 pandemic eased and economic uncertainty weighed on consumer spending. According to Counterpoint, global smartphone shipments in the second quarter of 2024 grew 6% year-over-year. This should benefit Qualcomm's CDMA Technology division, which sells application processors, modems and software for mobile devices, network equipment and consumer electronics. In addition, Qualcomm is also seeing increased demand from China, where adoption by local OEMs has increased by more than 40% compared to last year, as demand for premium Android devices rises at the expense of Apple's iPhones. About 40% of the company's sales were to companies headquartered in China and Hong Kong in the last quarter. Growing interest in generative artificial intelligence is also benefiting Qualcomm. The company sees increased demand for its high-end chipsets, such as the Snapdragon 8 Gen 3, which are optimized for AI, including enhanced voice assistants and image generation. Qualcomm's chips also seem to be gaining traction in the PC market as vendors look to bring AI natively to computers with their Snapdragon X chips. A few months ago, Microsoft and other Windows PC makers announced new computers with artificial intelligence capabilities using these new processors. Stay tuned for updates on this when the company reports earnings.

Qualcomm's automotive business is also doing well, as semiconductors play a bigger role in the transportation industry as trends like electrification and autonomous driving accelerate. Semiconductor content in cars is also surging. According to Deloitte, electronics make up 40% of the total cost of a new car, up from less than 20% in 2000. This figure is expected to exceed 45% by the end of the century. Qualcomm's automotive revenues increased 35% year-over-year to $603 million in the second quarter of fiscal 2024. Qualcomm is gaining market share and is on track to exceed $4 billion in automotive revenues by fiscal 2026. Growth is likely to continue, but the recent slowdown in auto sales and EV industry stagnation could impact this segment for the time being.

Currently, optimism surrounding artificial intelligence and Qualcomm's automotive business has driven the company's stock price up 40% from $150 in early January 2021 to around $210. Meanwhile, the S&P 500 index has risen by about 50% over the past three years. However, Qualcomm's stock price increase has not been consistent. The company's price-to-earnings ratio was 20% in 2021, -40% in 2022, and 32% in 2023. In comparison, the S&P 500 index's returns were 27% in 2021, -19% in 2022, and 24% in 2023. QCOM underperformed the S&P In 2021 and 2022. In fact, Consistently outperforming the S&P 500 It's been a tough time for individual stocks in recent years, through good times and bad, including big names in the information technology sector like AAPL, MSFT, and NVDA, as well as large caps like GOOG, TSLA, and AMZN.

In contrast, the Trefis High Quality Portfolio, which holds 30 stocks, Outperforming the S&P 500 every year During the same period. why is that? As a group, HQ Portfolio stocks offered better returns with lower risk compared to the benchmark index. There was less rollercoaster volatility as evidenced by the HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment, high oil prices and high interest rates, QCOM may face similar conditions in 2021 and 2022. Underperforming the S&P Will we see a significant upswing over the next 12 months?

Qualcomm's stock is trading at about $204 per share, or about 21 times FY24 consensus earnings. While this is not a high multiple, there are some concerns. Competition in the company's core mobile chipset segment is also heating up. For example, China's Huawei's new smartphones will be equipped with its own Kirin processors, which will reduce Qualcomm's sales. There is also speculation that Samsung may drop Qualcomm's processors in its next flagship in favor of its own Exynos chip line. Qualcomm's stock is expected to trade at $189, 9% lower than the current market price of $210. Qualcomm's evaluation: Is it expensive or cheap? For more information on what factors drive our stock price forecasts, please click here.

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