As the semiconductor industry races towards its projected trillion-dollar valuation, driven by advancements in artificial intelligence (AI) and a recovering smartphone market, Qualcomm (QCOM) has quietly emerged as a standout performer. This mobile chipset leader has defied expectations, outpacing many of its peers with a remarkable 44.4% year-to-date stock price surge.
Though you might not be able to tell by this outsized YTD return, Qualcomm stock has recently corrected from its early June highs - presenting a potential buying opportunity for investors. Of note for prospective buyers, the company boasts a solid 20-year dividend growth history, with a yield of over 1.6% - and the most bullish analysts are currently projecting up to 29% more upside from here.
As Qualcomm prepares to release its next earnings report at the end of this month, here's what investors need to know about this outperforming semiconductor stock.
Qualcomm's Financial Performance
Qualcomm Inc. (QCOM), based in sunny San Diego, is a heavyweight in the semiconductor and telecommunications game, known for pushing the envelope in wireless technology.
Valued at $231 billion by market cap, QCOM stock has gained 78.2% over the past 52 weeks, comfortably outpacing the broader market. More recently, the shares are down about 10% from their mid-June highs around $230, providing a potential opportunity to buy into the next leg of the rally.
Qualcomm's forward P/E ratio is around 25.09, which means it's not super cheap, but it's also not overpriced. Think of it like buying a quality suit for full retail price - an investment in the premium name that you're buying. In fact, relative to some other tech names, QCOM is trading at a modest discount.
They've been raking in cash too, with $13.25 billion in operating cash flow and $12.27 billion in free cash flow over the past year. The company's free cash flow (FCF) yield is about 5.5%, which is solid for a tech firm. Barchart's own Mark Hake says that Qualcomm's fair value is closer to $284 per share, thanks to its strong cash flow generation.
In addition to the growth potential, Qualcomm also offers a decent dividend. The company pays out $0.85 per share each quarter, totaling $3.40 annually. At current levels, this translates to a yield of about 1.64%. While that's not the fattest yield around, it's not too shabby for a tech stock that's still growing. Plus, Qualcomm has a 20-year history of dividend growth, providing a steady income stream even when markets are volatile.
QCOM Beats on Q1 Earnings
Qualcomm's recent earnings report was another highlight. On May 1, the company reported fiscal Q2 results, with revenue of $9.39 billion beating Wall Street's forecasts. Q2 profit was $2.33 billion, or $2.44 per share on an adjusted basis, compared to estimates for $2.30.
The well-received earnings pushed the shares up 9.74% the next day, and Qualcomm is generating a lot of buzz as we look ahead to its upcoming earnings.
For Q3 2024, which ended in June, management provided revenue guidance ranging from $8.8 billion to $9.6 billion, with EPS guidance between $2.15 and $2.35. Analysts are looking for $2.26 per share in earnings, on an adjusted basis, on revenue of $9.22 billion.
Stay tuned for Aug. 7, when Qualcomm is expected to release its fiscal Q3 earnings report.
Qualcomm's Bold Moves
The company recently unveiled its Snapdragon X processors, aiming to disrupt the PC market traditionally dominated by Intel (INTC) and AMD (AMD). It's a bold move, but Qualcomm seems ready for the challenge.
What's really exciting about these new processors is their focus on AI capabilities. This aligns perfectly with Microsoft's (MSFT) Copilot+ initiative, which aims to bring AI-powered experiences to Windows PCs.
Additionally, rumor has Qualcomm will be the exclusive chip provider for Samsung's upcoming Galaxy S25 smartphone. Samsung is a heavyweight in the smartphone world, and securing an exclusive deal for their flagship device is a major win for Qualcomm. It underscores the quality and performance of their mobile chips, and could give them a significant edge in the competitive smartphone market.
Qualcomm's ambitions extend beyond smartphones and traditional PCs. Along with Arm Holdings (ARM), they're eyeing leadership in the emerging "AI PC" category. This new breed of computers, which Microsoft launched ahead of its Build conference, leverages Arm-based Qualcomm chips to deliver enhanced AI capabilities. It's a bold bet on the future of computing, and if it pays off, Qualcomm could find itself at the forefront of a major technological shift.
Is Qualcomm a Buy, According to Analysts?
The consensus rating for Qualcomm is a “Moderate Buy,” based on recommendations from 29 analysts.
Breaking it down, 17 experts are giving the stock a “Strong Buy,” 1 suggests a “Moderate Buy,” 10 are on the fence with a “Hold,” and just 1 is waving the red flag with a “Strong Sell.”
The mean price target for Qualcomm is $195.87, which is a discount to Wednesday's closing price. However, the Street-high price target of $270 suggests the stock could rise more than 29% higher from here.
The Bottom Line on QCOM Stock
So, should you buy the dip in Qualcomm? The answer is yes. With its strong financial performance, strategic positioning in the AI and PC markets, and a solid dividend history, Qualcomm presents a compelling investment case.
More to the point, the recent correction in its stock price offers a chance to invest in a well-established company with significant upside potential. As the semiconductor sector continues to grow, Qualcomm is well-positioned to capitalize on these trends.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
