Missed Nvidia? Here’s an incredibly cheap artificial intelligence (AI) stock to buy before it soars higher.

By | March 27, 2024

Nvidia is the pioneer in the artificial intelligence (AI) chip market because its graphics processing units play a central role in helping cloud service providers train large language models. This explains exactly why the semiconductor giant’s revenues, profits and stock prices have soared over the past year.

NVDA Revenue Chart (TTM).NVDA Revenue Chart (TTM).

NVDA Revenue Chart (TTM).

The good part is that Nvidia’s estimated 90%+ market share in AI chips indicates that it could very well continue its dazzling growth in the future. According to third-party estimates, the AI ​​chip market is expected to surpass $304 billion in annual revenue by 2030, and there are a few Wall Street analysts who believe Nvidia could ultimately capture the lion’s share of this opportunity in the future . long-term.

However, Nvidia’s rapid growth means it now trades at a rich valuation. At 75 times earnings and 36 times revenue, Nvidia is not a value play. Of course, the company’s forward multiples indicate that it could justify its rich valuation by delivering excellent growth going forward, but not everyone may feel comfortable paying the rich multiples to buy this AI stock .

Qualcomm (NASDAQ: QCOM)however, is an incredibly cheap semiconductor stock that you can buy now to benefit from the proliferation of AI. Its growth may not be close to Nvidia’s right now, but it appears to be on track to capitalize on two fast-growing AI-related markets that could boost long-term growth.

AI-powered smartphones and PCs could give Qualcomm a nice opportunity

Qualcomm is the second largest manufacturer of smartphone application processors in the world. According to Counterpoint Research, the company held 23% of this market at the end of 2023. It’s worth noting that Qualcomm’s growth over the past year has been nothing to write home about, thanks to the slowdown in the smartphone market.

However, in the first quarter of fiscal 2024 (for the three months ended December 24, 2023), Qualcomm’s mobile revenue rose 16% year over year to $6.69 billion. The company’s total revenue, meanwhile, rose 5% year-over-year to $9.92 billion. Qualcomm therefore gets just over two-thirds of its total revenue from the sale of smartphone chips.

The good news for Qualcomm is that the smartphone market will recover from 2024 onwards. Market research agency IDC predicts a 2.8% increase in smartphone sales this year to 1.2 billion units. However, sales of AI smartphones are expected to more than triple this year from 51 million units last year to 170 million units last year, accounting for 15% of the total market by 2024.

According to another estimate from Counterpoint Research, AI smartphone shipments could grow 83% annually through 2027, with annual shipments exceeding 500 million units by the end of the forecast period. Furthermore, AI smartphones are predicted to account for 40% of the total smartphone market by 2027, suggesting their sales could increase even further.

Counterpoint estimates that Qualcomm could capture more than 80% of the market for generative AI-powered smartphones in the coming years. This could help the company maintain the new-found momentum of its handset business. Qualcomm is looking to capitalize on this lucrative opportunity with its latest product development steps.

The Snapdragon 8 Gen 3 mobile processor platform can run generative AI models locally on smartphones, including voice-activated AI assistants and the Stable Diffusion image generation model. And now the company is looking to push the boundaries even further with the new Snapdragon 8S Gen 3 smartphone processor, which it claims will help run generative AI models locally on mid-range smartphones.

Qualcomm claims that this new chip can power more than 30 AI models on smartphones, including Llama 2 and Google Gemini. The company’s flagship Snapdragon 8 Gen 3 processor is already being used by Samsung to power AI features in the latest Galaxy S24 models, and this new addition is expected to help Qualcomm capture mid-range Android Original Equipment OEMs manufacturers) such as Xiaomi and Honor. .

Qualcomm is therefore pulling the right strings to ensure it remains in a solid position to tap into the AI-powered smartphone market. On the other hand, Qualcomm also has its sights set on the AI ​​PC market. PCs powered by Qualcomm’s AI-focused Snapdragon X Elite system-on-a-chip (SoC) will launch in mid-2024.

Qualcomm management noted during the company’s earnings conference call in January that Snapdragon X Elite’s “design earnings traction continues to increase since the platform’s announcement last October.” Samsung is reportedly going to implement this SoC in a new notebook and rumors suggest it could be more powerful than rival offerings from Intel, AMDAnd Apple.

Management also expects that “Snapdragon If Qualcomm can translate these claims into real-world performance, it won’t be surprising to see the company make a dent in the AI ​​PC market.

With the AI ​​PC market expected to grow 50% annually through 2030, Qualcomm’s entry into this market could provide a solid growth opportunity for the company. Thus, the company could benefit from AI adoption in two lucrative markets. Therefore, it may be a good idea to buy it while it is still cheap.

An attractive valuation is another reason to buy the stock

Qualcomm currently trades at 24 times current earnings and 18 times forward earnings. Both multiples represent a discount on the Nasdaq-100 index’s trailing earnings of 31 and forward earnings of 28 (using the index as a benchmark for technology stocks).

However, Qualcomm may no longer be available at such cheap multiples once AI starts moving the needle in a bigger way for the company. We’ve already seen the handset business picking up and the prospects of the AI ​​smartphone market suggest it could continue to get better. AI PCs, on the other hand, will help Qualcomm enter a new niche, allowing the company to grow faster than market expectations.

Once that starts to happen, Qualcomm shares could start to rise, along with other chipmakers benefiting from growing AI-powered sales. Therefore, investors would do well to buy it while it is still cheap.

Should You Invest $1,000 in Qualcomm Now?

Consider the following before buying shares in Qualcomm:

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, Nvidia and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

Missed Nvidia? Here’s an incredibly cheap artificial intelligence (AI) stock to buy before it soars higher. was originally published by The Motley Fool

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