Why Qualcomm Is a Top AI Stock to Consider

Published Date : 11/02/2025 

Despite facing significant competitive threats, Qualcomm's pivot into AI and recent breakthroughs could position it as a leading stock in the AI industry. Here's why now might be the right time to consider investing in Qualcomm. 

As most informed investors in artificial intelligence (AI) stocks know, not all investments are multibaggers.

Some have struggled to outperform the S&P 500 in specific time periods.

A prime example is Qualcomm (QCOM), a prominent semiconductor stock.

Despite leading the way in smartphone chipsets and pivoting into AI, investors have been hesitant due to a slower upgrade cycle and competitive concerns.

However, recent developments could change this outlook.

Why Consider Qualcomm Now?At first glance, now might not seem like the best time to invest in Qualcomm.

The company faces its most serious competitive threats in decades.

Chinese tech giant Huawei no longer needs Qualcomm's chips, and Apple has plans to replace Qualcomm's chips in iPhones by 2027.

This could cost Qualcomm a major customer.

Qualcomm's success has often hinged on upgrade cycles, but the latest cycle has been challenging.

After the 5G upgrade cycle ran its course, Qualcomm's revenue growth turned negative.

To reverse this trend, the company has been pivoting into AI, hoping it will spark the next upgrade cycle.

The Impact of AI on QualcommRecent advancements in AI, particularly the DeepSeek breakthrough, could be a game-changer.

More consumers might now want to upgrade to capitalize on AI functionality.

Since the handset segment remains Qualcomm's largest revenue source, this could bode well for the company.

Qualcomm is not just focusing on AI in the smartphone business.

The company has been expanding into the Internet of Things (IoT) and automotive applications, bringing communications technology into other environments.

More recently, Qualcomm has developed chips to power PCs, putting it in direct competition with Apple and AMD.

This move could help Qualcomm gain ground on struggling chip giant Intel.

Financial PerformanceQualcomm's financials have already begun to benefit from its AI initiatives.

In the first quarter of fiscal 2025 (ended Dec.

29, 2024), revenue grew 17% to $11.7 billion compared to the same quarter in fiscal 2024.

This is a significant improvement from the 9% increase in fiscal 2024 and the 19% pullback in fiscal 2023.

The higher revenue has also made Qualcomm more profitable, with Q1 net income rising 15% to $3.2 billion from the previous year.

Although a tripling of income tax expenses slowed profit growth slightly, this should not overshadow the company's successes.

Future OutlookThe outlook for Qualcomm remains positive.

The estimated Q2 revenue of $10.3 to $11.2 billion represents a sequential slowdown to 14% at the midpoint.

However, in the previous quarter, the company handily beat its forecast of up to $11.3 billion in revenue for Q1.

If this trend continues, revenue growth will likely accelerate.

Additionally, Qualcomm's stock sells at a P/E ratio of about 18, the lowest among major semiconductor companies.

This low valuation means that if Qualcomm can capitalize on the growing demand for AI functionality, a combination of growth and multiple expansion could significantly increase the stock's value.

ConclusionThanks to its strategic position in the AI market and the recent DeepSeek breakthrough, Qualcomm could emerge as a top AI stock.

While losing Huawei and the potential loss of Apple as a customer are significant setbacks, it is unclear if Apple will succeed in replacing Qualcomm.

With AI modeling becoming more affordable, more consumers will have a reason to upgrade their smartphones.

This higher demand for AI could also increase interest in Qualcomm's other products.

At a P/E ratio of 18, the promise of its technology and a low valuation could position Qualcomm for considerable returns. 

Frequently Asked Questions (FAQS):

Q: Why has Qualcomm struggled despite leading in smartphone chipsets?

A: Qualcomm has faced challenges due to a slower upgrade cycle and competitive concerns, particularly with the loss of Huawei and the potential loss of Apple as major customers.

Q: What is the significance of the DeepSeek breakthrough for Qualcomm?

A: The DeepSeek breakthrough could significantly accelerate the adoption of AI in consumer devices, potentially sparking a new upgrade cycle and boosting Qualcomm's revenue.

Q: How is Qualcomm expanding beyond smartphones?

A: Qualcomm is pivoting into the Internet of Things (IoT) and automotive applications, and has also developed chips to power PCs, putting it in direct competition with Apple and AMD.

Q: What is Qualcomm's current financial performance like?

A: In the first quarter of fiscal 2025, Qualcomm's revenue grew 17% to $11.7 billion, and net income rose 15% to $3.2 billion, indicating strong financial health and growth.

Q: What is Qualcomm's current P/E ratio, and why is it significant?

A: Qualcomm's stock sells at a P/E ratio of about 18, which is the lowest among major semiconductor companies. This low valuation suggests potential for significant growth if the company can capitalize on the growing demand for AI functionality. 

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