Quantum Leaps in Qualcomm's Shares due to Robust Revenue Increase; Timely Purchase of the Stock a Question?
Qualcomm (QCOM 1.66%) saw a surge in its stock price following its impressive fourth-quarter results last week, despite not reaching its June peak yet. As of now, the stock has climbed approximately 20% year on year.
The tech giant's performance traditionally correlates with trends in the smartphone sector, and its revenue saw a significant boost in the recent quarter. Additionally, it announced a new $15 billion stock repurchase program.
Now that the market has digested the latest news, the question remains: is the stock still a worthwhile investment, or has the opportunity passed?
Revenue on the Rise
After posting 5% revenue growth in the first quarter and a mere 1% increase in the second quarter, Qualcomm managed to accelerate its revenue growth in the second half of its fiscal 2024. Revenue grew by 11% in Q3, followed by a 19% rise to $10.2 billion in the quarter ending September 29, exceeding the $9.9 billion analysts expected.
Overall chip revenue increased by 18% to $8.7 billion. Handset chip revenue, comprising smartphones, rose by 12% to $6.1 billion, while automotive revenue skyrocketed by 68% to $899 million. IoT revenue also rose by 22% to $1.7 billion.
Handset revenue was driven primarily by a 20% increase in Android revenue, and the company's new Snapdragon 8 Elite chip was performing well. Qualcomm is also venturing into edge device artificial intelligence (AI) opportunities by collaborating with leading AI model companies to provide cloud-to-edge solutions.
In the automotive chip segment, the company stated it was benefiting from an increase in new model launches utilizing its technology. The shift towards digital cockpits and advanced driver assistance systems was proving profitable, while in IoT, the company saw benefits from new product launches and the normalization of channel inventory.
Revenue from its high-margin licensing segment increased by 21% to $1.5 billion. The company indicated it had completed numerous license renewals during the quarter. Adjusted EPS increased by 33% to $2.69, surpassing analysts' expectation of $2.56.
Looking forward, Qualcomm expects first-quarter revenue to range from $10.5 billion to $11.3 billion, indicating a growth rate of 6% to 14%. It projects chip revenue between $9 billion to $9.6 billion and licensing revenue between $1.45 billion and $1.65 billion. Adjusted EPS is estimated to fall within the $2.85 to $3.05 range.
Qualcomm anticipates mid-single-digit percentage growth in handset chip sales, driven by demand from Chinese smartphone manufacturers and new Android smartphone launches. It forecasts automotive segment revenue to surge by more than 50%, and IoT revenue to increase by 20%, thanks to growth in the consumer, industrial, and networking sectors.
Is Qualcomm a Worthy Investment?
Qualcomm is experiencing momentum from the smartphone market's sales recovery and upgrade cycle, as customers seek out more powerful devices capable of running AI applications natively. This trend is also resulting in consumers purchasing a higher share of advanced smartphones, which generally contains Qualcomm's newer chips.
Beyond smartphones, the company is making progress in sectors like automotive, IoT, PCs (personal computers), and XR (extended reality) glasses. The launch of Copilot+ PCs appears set to serve as a strong growth factor for the company, while the new Snapdragon X Plus 8-core chip could provide access to the $700 PC price-point market.
From a valuation perspective, Qualcomm shares appear undervalued, trading at a forward-price-to-earnings (P/E) ratio of just over 15, based on analysts' projections. Meanwhile, the price/earnings-to-growth (PEG) ratio is slightly above 0.6. Stocks with positive PEG ratios below 1 are often considered undervalued, and growth stocks frequently trade at ratios significantly higher.
The stock remains far from its recent highs, and its revenue growth has picked up pace in recent quarters. Given the combination of an appealing valuation, an improving smartphone market, and expanding opportunities in other sectors, Qualcomm seems like a solid long-term investment option, even following the post-earnings surge in its stock price.
After announcing a successful fourth-quarter performance and a new $15 billion stock repurchase program, investors are questioning if Qualcomm's stock still presents a worthy investment opportunity. Considering its recent revenue growth, which surged by 19% in the third quarter to $10.2 billion, the company's high-margin licensing segment increasing by 21%, and prospects of mid-single-digit percentage growth in handset chip sales, Qualcomm's attractive valuation with a forward-price-to-earnings (P/E) ratio of over 15 and a PEG ratio slightly above 0.6, might make it an appealing long-term investment option, despite the stock price surge following its earnings.
