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Qualcomm's Growth Will Be Driven By AI-Embedded Devices (Rating Upgrade)
QCOMQualcomm(QCOM) Seeking Alpha·2024-08-01 19:07

Core Insights - Qualcomm reported Q3'24 adjusted EPS of 2.33,exceedingconsensusestimatesof2.33, exceeding consensus estimates of 2.25, and provided a strong Q4'24 forecast of 2.45−2.65/share[1][5]−RevenuegrowthinQ3′24wasdrivenbyasignificantincreaseinhandsetrevenue(up872.45-2.65/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,beatingestimates,withastrongforecastforQ4′24of2.33, 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 9.5−10.3billion,representingayear−over−yearincreaseof10−199.5-10.3 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]SegmentAnalysis−Thehandsetsegmentisexpectedtobenefitfrompremiumsmartphonesales,withmanagementforecastinglowsingle−digitgrowthdrivenbyAI−enableddevices[3][7]−Theautomotivesegmentsawaremarkable8710.06/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]