Qualcomm Incorporated QCOM recorded solid third-quarter fiscal 2024 results, with the top and bottom lines beating the respective Zacks Consensus Estimate. Both metrics improved year over year, driven by healthy demand trends in Android handsets and automotive businesses.
Management expects a steady improvement in the demand trajectory in the remainder of fiscal 2024 and remains confident of delivering non-GAAP earnings per share growth of about 20% year over year.
Key Growth Drivers
Qualcomm envisions solid growth opportunities within the mobile space, driven by the strength of its Snapdragon portfolio. With the accelerated rollout of 5G technology, the chip manufacturer is benefiting from investments toward building a licensing program in mobile. The company is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream.
Qualcomm is focusing on retaining its leadership in 5G, chipset market and mobile connectivity with several technological achievements and innovative product launches. It is likely to help users experience a seamless transition to superfast 5G networks, delivering low-power resilient multi-gigabit connectivity with unprecedented range and Qualcomm's best-in-class security. This, in turn, would further offer the flexibility and scalability needed for broad and fast 5G adoption through accelerated commercialization by OEMs.
The company intends to harness artificial intelligence to meet increased demands for essential products and services that are the building blocks of digital transformation in a cloud economy. Qualcomm is currently focusing on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge. It is witnessing healthy traction in EDGE networking that helps to transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets.
Automotive Traction
The buyout of Veoneer, Inc. has offered Qualcomm a firmer footing in the emerging market of driver-assistance technology as it aims to extend the Snapdragon Ride Advanced Driver Assistance Systems (ADAS) portfolio. The Arriver business of Veoneer operates the dedicated software unit focused on sensor perception and drive policy, including a full stack of features and functions.
With the acquisition, Qualcomm has incorporated Arriver's Computer Vision, Drive Policy and Driver Assistance assets into its ADAS portfolio to deliver an open and competitive platform for automakers to better compete with rivals within the self-driving vehicle market.
The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Qualcomm believes it is on track to become the largest smartphone RF front-end supplier by revenue in the near future.
Automotive revenues surged 87% to a record high of $811 million in the fiscal third quarter, driven by increased content in new vehicle launches with its Snapdragon Digital Chassis platform. This was the 15th consecutive quarter in which Qualcomm recorded double-digit growth in automotive revenues. The company expects automotive revenues to increase to more than $4 billion in fiscal 2026.
Price Performance
Over the past year, Qualcomm has gained 33.5% compared with the industry’s growth of 32.1%, outperforming peers like Hewlett Packard Enterprise Company HPE but lagging Broadcom Inc. AVGO.
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Estimate Revision Trend
Earnings estimates for Qualcomm for 2024 have moved down by a penny to $9.88 over the past seven days, while the same for 2025 has gone up by 12 cents to $11.13.
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Key Valuation Metric
From a valuation standpoint, Qualcomm appears to be relatively cheaper compared to the industry and below its mean. Going by the price/earnings ratio, the company shares currently trade at 14.57 forward earnings, lower than 20.38 for the industry and the stock’s mean of 17.59.
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End Note
With solid fundamentals and healthy revenue-generating potential driven by robust demand trends, Qualcomm appears to be a solid investment proposition. It also looks cheaper relative to its valuation metrics. Further, a strong emphasis on quality, diligent execution of operational plans and continuous portfolio enhancements are driving more value for customers. With improving earnings estimates, the stock is witnessing a positive investor perception.
The stock has long-term earnings growth expectations of 11.45 and delivered a trailing four-quarter average earnings surprise of 7.6%. It has a VGM Score of A. Qualcomm currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Riding on a robust earnings surprise history and favorable Zacks Rank, its healthy growth momentum is expected to continue. Hence, investors are likely to profit if they bet on this high-flying stock now.
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