Qualcomm's Growth Will Be Driven By AI-Embedded Devices (Rating Upgrade)

Core Insights - Qualcomm reported Q3'24 adjusted EPS of $2.33, exceeding consensus estimates of $2.25, and provided a strong Q4'24 forecast of $2.45-2.65/share [1][5] - Revenue growth in Q3'24 was driven by a significant increase in handset revenue (up 87%) and automotive revenue (up 12%) within the QCT segment [1][4] - The company is optimistic about future growth, particularly in the automotive sector, projecting revenue to reach $4 billion by 2026 [4] Financial Performance - Q3'24 adjusted EPS was $2.33, beating estimates, with a strong forecast for Q4'24 of $2.45-2.65/share [1][5] - Total revenue for Q4'24 is expected to be between $9.5-10.3 billion, representing a year-over-year increase of 10-19% [5] - For the full fiscal year 2024, Qualcomm is projected to generate $38.34 billion in revenue and adjusted EPS of $10.06/share [6] Segment Analysis - The handset segment is expected to benefit from premium smartphone sales, with management forecasting low single-digit growth driven by AI-enabled devices [3][7] - The automotive segment saw a remarkable 87% year-over-year revenue growth in Q3'24, with expectations for continued growth due to increased content per vehicle [4] - Industrial IoT is anticipated to experience low double-digit growth, supported by partnerships like the one with Aramco for advanced IoT solutions [4] Market Outlook - Qualcomm's management remains optimistic about the premium smartphone market, despite a flat overall handheld market forecast [3] - The company has extended its licensing agreement with Apple through 2027, which may enhance its position in the AI-enabled device market [3] - Despite challenges in the automotive and smartphone markets, Qualcomm expects to benefit from additional content per device and regional expansion, particularly in China [7] Valuation and Investment Perspective - Qualcomm shares are valued at $202.80/share based on a 21.32x eFY25 price/aEarnings multiple, with an upgrade to a BUY rating [1][11] - The company trades at a lower multiple compared to peers like AMD and Nvidia, which may limit short-term growth potential [9] - The stock is expected to retrace to around $150 before resuming growth, presenting a potential buying opportunity [13]