Qualcomm(NASDAQ: QCOM) stock hasn't exactly set the market on fire this year as compared to some other illustrious names in the semiconductor industry. Shares of the chipmaker are down 26% since hitting a 52-week high on June 18 as of this writing.
As a result, Qualcomm has underperformed the PHLX Semiconductor Sector index's returns in 2024 with gains of 16% as of this writing. However, the company's latest results suggest that the growing demand for smartphones thanks to catalysts such as artificial intelligence (AI) could send this semiconductor stock soaring in 2025.
Let's take a closer look at Qualcomm's fiscal fourth-quarter 2024 results released on Nov. 6 (for the quarter ended Sept. 29) to see why it would be a good idea to buy the stock right away.
Qualcomm's latest results sent the stock soaring, and it seems set to sustain its rally
Qualcomm stock jumped 7% following the release of its latest results. The company's quarterly revenue increased 18% year over year to $10.2 billion, while adjusted earnings increased at a faster pace of 33% to $2.69 per share. The numbers were ahead of analysts' expectations (compiled by FactSet) of $2.56 per share in earnings on revenue of $9.9 billion.
The company, which is a dominant player in the market for smartphone chips, also delivered better-than-expected guidance. Qualcomm expects fiscal 2025 Q1 earnings to land at $2.95 per share on revenue of $10.9 billion. That's higher than analysts' estimate of $2.86 per share in earnings on revenue of $10.6 billion.
On a year-over-year basis, Qualcomm's guidance suggests that its revenue is on track to increase by 10%, while earnings would increase by 7%. While that would represent a deceleration over the impressive growth that Qualcomm delivered last quarter, investors should remember that the company benefited from the launch of Apple's latest iPhone generation.
After all, Apple's iPhone 16 models are reportedly equipped with Qualcomm's Snapdragon X75 modem, so the production ramp of those devices should have positively impacted the chipmaker's sales last quarter. However, don't be surprised to see Qualcomm delivering better-than-expected results once again as the company could benefit from the production ramp of another flagship smartphone lineup from Apple's competitor, Samsung.
The South Korean smartphone giant has been using Qualcomm's Snapdragon processors to power its generative AI-enabled Galaxy smartphones. Samsung is expected to launch its next-generation Galaxy S25 series of devices in January or early February 2025, and it could sport Qualcomm's latest Snapdragon 8 Elite processor.
Supply chain rumors indicate that Qualcomm's processors could end up powering all of Samsung's Galaxy S25 smartphones as compared to its earlier strategy of offering its in-house Exynos processors in some regions and Qualcomm processors in other regions. This should bode well for Qualcomm as Samsung is the world's largest vendor of smartphones with a market share of 18% in the third quarter of 2024, according to Canalys.
More importantly, the company's Galaxy S24 flagship smartphone was leading the global generative AI smartphone market with a share of just over 58% in the first quarter of the year, according to Counterpoint Research. With Qualcomm's Snapdragon 8 Elite processor capable of powering on-device generative AI applications, it is easy to see why Samsung may be tempted to shift all of its Galaxy S25 smartphones to this processor.
Even better, Qualcomm points out that other smartphone OEMs (original equipment manufacturers) such as ASUS, Honor, iQOO, Motorola, Nubia, OnePlus, OPPO, RedMagic, Redmi, Realme, Samsung, Vivo, Xiaomi, ZTE, and more "are poised to launch devices powered by the Snapdragon 8 Elite, in the coming weeks."
What this means is that Qualcomm is in a solid position to benefit from the secular growth of the generative AI smartphone market, which is expected to clock 78% annual growth through 2028 and hit annual shipments of 912 million units at the end of the forecast period, according to IDC. More importantly, Qualcomm is the second largest player in the smartphone application processor market with a share of 31%, according to Counterpoint Research.
Qualcomm has been taking share away from market leader MediaTek in recent quarters, a trend that's likely to continue as Counterpoint estimates that Qualcomm could capture more than 50% of the generative AI smartphone market. MediaTek, on the other hand, is expected to corner only a 13% share of the generative AI smartphone market. So, it won't be surprising to see Qualcomm enjoy stronger growth in the new fiscal year and in the long run.
An attractive valuation and the company's earnings growth potential make it worth buying
Analysts have bumped up their earnings expectations for Qualcomm for the new fiscal year that has just begun, and also for fiscal 2026. This can be seen in the chart below.
QCOM EPS Estimates for Current Fiscal Year data by YCharts
Assuming Qualcomm does generate $11.21 per share in earnings in fiscal 2025 and trades at 30 times forward earnings after a year (in line with the tech-laden Nasdaq-100 index's forward earnings multiple), its stock price could hit $336. That would be nearly double of the current stock price. However, Qualcomm has a forward earnings multiple of just 15, which means that investors are getting a solid discount on this semiconductor stock right now.
Buying Qualcomm at this valuation looks like a no-brainer considering the big opportunity in the generative AI smartphone market and the company's robust position in this space, which could send the stock soaring in 2025 and beyond.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Qualcomm. The Motley Fool has a disclosure policy.
