Qualcomm is an American company, manufacturer of microchips and systems-on-chip, which are used in mobile phones as well as other electronics. The company demonstrates a strong financial performance and is one of the beneficiaries of the trend towards artificial intelligence (AI). The fair value of Qualcomm shares is $214.4, with a growth potential of 28.5%. The dividend yield is 2%.
Investment thesis
🔼 Strong financial performance. For the Q2 2024 financial year (ended March 24, 2024), Qualcomm showed a 1% revenue growth to $9.4 billion. Sales in the handset segment, which accounts for the largest share of revenue, rose by 1%, and the automotive chips segment grew by 35%, reflecting post-COVID demand recovery. Only the "Internet of Things" segment showed a decline. Adjusted earnings per share (EPS) increased by 13% to $2.44. Both metrics were better than market forecasts. Qualcomm forecasts that revenue in the current quarter will decrease to $8.8-9.6 billion, which is a typical seasonal pattern due to the low number of new smartphone launches during this period. EPS is expected to be in the range of $1.74-1.94. However, the company's longer-term prospects look optimistic as the implementation of AI functionality in smartphones will require a large number of high-performance chips.
🔼 Attractive valuation. Qualcomm is valued by the market at 18 expected annual earnings, which is significantly lower than the median value for the sector (24.7 annual earnings). This indicates growth potential for the company's shares.
🔽 Risks. The company will present its quarterly report on July 31, which may cause increased volatility in the stock. In the last few quarters, Qualcomm has reported better-than-expected results. This trend may continue in the upcoming report.
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