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This Artificial Intelligence (ai) Stock Is Bound To Be A Winner No Matter What Happens To The Market This Year
Amid the race to compete in artificial intelligence (AI), investors interested in this sector have tended to ignore Qualcomm (NASDAQ: QCOM). Part of the reason for this is that the longtime leader in smartphone chipsets is at a bit of a crossroads regarding its future as it seeks to diversify its product offerings away from smartphones. Additionally, the struggles Apple is seeing selling AI-enabled phones and the fact that Apple appears ready to drop Qualcomm as a chipset supplier have led some investors to sour on the semiconductor stock.
Given the uncertainties and headwinds for the company, it may surprise investors that Qualcomm is likely in a strong position to prosper in 2025 and its shareholders to benefit, regardless of what happens in the broader market. Here's why.
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Qualcomm and AI
As mentioned, Qualcomm's chipsets have long led the chipset market. As the 5G upgrade cycle has cooled, the company has pivoted to designing AI-enabled chips. To that end, it has developed the Snapdragon 8 Gen 3 chip for this purpose, and it should improve on its capabilities with the upcoming release of a Gen 4 chip.
Among the functions that such chips can offer are enhanced photography, real-time language translation, and facial recognition. Admittedly, these features have not motivated consumers to upgrade in large numbers, but as the full potential of AI becomes better known, Qualcomm has better positioned itself to capitalize on the technology when consumers are ready.
Moreover, Qualcomm has worked to incorporate AI into its newer technologies, such as IoT and automotive. On the IoT side, AI can help users analyze data on their devices, increasing efficiency for users. In its automotive business, AI is the technology that makes autonomous driving possible. In fiscal 2024 (ended Sept. 29), automotive was only 7% of Qualcomm's revenue. However, since it grew by 55% over the previous year, it could become a critical driver in Qualcomm's stock performance over time.
Furthermore, Qualcomm's AI has expanded into PCs, where it will compete with Advanced Micro Devices and Intel. Considering its use of AI in numerous areas, Qualcomm appears to be evolving into an increasingly critical AI company.
Admittedly, the recent AI-related news from DeepSeek brings uncertainty to the AI market, and how it will perform this year is not yet known. Nonetheless, handset demand and the growth of AI in the automotive sector are separate matters. Moreover, Grand View Research forecasts AI's compound annual growth rate (CAGR) at an astounding 37% between 2024 and 2030.
The Grand View estimate came before the DeepSeek news. However, even if DeepSeek reduces the cost and growth of AI, the rising demand for Qualcomm's products should help the stock regardless of what happens to the overall market.
Qualcomm's financial performance
Its successes in AI appear to be already helping the company's financials. Although Qualcomm's overall performance may not excite growth investors at this moment, its financial performance should bring stability to the stock. In fiscal 2024, revenue of $39 billion grew by 9%. This represents a reversal of the revenue decline in fiscal 2023, as rising demand for handsets and automotive products drove the growth.
Moreover, over that time, costs and expenses rose by only 3%. That allowed Qualcomm to report a net income of more than $10 billion, an increase of 40% from year-ago levels. Indeed, fiscal 2025 looks like more of the same, as consensus estimates point to 9% revenue growth again. That may explain why the stock rose by only 14% over the last 12 months.
Still, the case for it performing well regardless of the market's performance hinges heavily on its valuation. As of now, its P/E ratio is only 19. That is far below all of its major peers, including its manufacturing partner Taiwan Semiconductor Manufacturing, which has historically sold at a discount to chip design companies like Qualcomm.
The low earnings multiple also makes it less vulnerable to a sell-off in a down market and more likely to rise if the overall market increases. Thus, as long as Qualcomm can match or exceed the aforementioned growth expectations, its stock is in a position to rise irrespective of the market's direction.
Data by YCharts.
Qualcomm as a winner
Considering its technical lead and financial condition, Qualcomm stock is likely to win in 2025 regardless of the broader market's performance. To be clear, the likely loss of Apple as a customer will be a huge setback. So too is the fact that the AI-driven upgrade cycle in Apple iPhones has so far not translated into the rapid revenue increases that growth investors would like to see.
However, Qualcomm has registered enough growth in other segments of the business to bring about a recovery. Additionally, it is fostering new revenue sources, and the AI-driven potential of its automotive platform is showing particular promise. With its P/E ratio mired in the teens, the improving profits should limit its potential downside and drive gains over the course of 2025.
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Will Healy has positions in Advanced Micro Devices, Intel, and Qualcomm. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
