MW Qualcomm could prove to be an underrated AI story
By Therese Poletti
If the chip designer's aspirations pan out, it could become a serious rival to Intel and AMD
Chip designer Qualcomm Inc. could be the sleeper stock of the AI hardware boom.
On Wednesday, Qualcomm $(QCOM)$ shares jumped after its better-than-expected second-quarter results, along with a lot of comments about its positive momentum with artificial intelligence. Qualcomm highlighted how its chips are in - or soon will be in - next-generation smartphones and personal computers, some expected to hit stores later this year. Its shares were up nearly 4% in after-hours trading.
"As AI expands rapidly from the cloud to devices, we are extremely well-positioned to capitalize on this growth opportunity, given our leadership position at the edge across technologies, including on-device AI," Qualcomm Chief Executive Cristiano Amon told analysts on the company's call.
Qualcomm is primarily known for mobile chips in smartphones, and it said it believes its neural processing unit (NPU) will enable compute-intensive AI to run on devices like smartphones and laptops without compromising battery life. Already it is seeing the first instances launched on high-end Android smartphones powered by its Snapdragon 8, Gen 3 chip "that has been resonating well with the consumer," Amon said. They are seeing strong end-consumer demand, especially in China.
In addition, Qualcomm's Snapdragon X Elite chip will be in all the leading PC makers' new AI PCs beginning in mid-2024, though it will likely not be material to its Internet-of-Things business unit until fiscal 2025.
"I would encourage everybody to go watch the Microsoft Build event, especially what is happening with on-device AI," Amon told analysts. "There's a lot of product momentum and launches, as those devices start ramping up in volume. And since a lot of them are going to be back to school, it's going to be more of a fiscal 2025 event in terms of being material within the IoT segment."
Qualcomm's fiscal year ends in September.
If Qualcomm's aspirations pan out, it could become a serious rival to Intel Corp. $(INTC)$, as well as Advanced Micro Devices Inc. $(AMD)$, which are both planning PC chips to handle AI-compute loads on devices.
For more: AMD is the latest company to show that AI is an expensive proposition
So far, though, its stock has not seen the big AI boost as some of its chip brethren. AMD, for example, has seen its shares soar about 61% in the past 12 months, thanks to anticipation of a boost from AI revenues. Other chip makers have seen even more investor enthusiasm, such as Broadcom Inc. $(AVGO)$, which is up about 95% this year, while AI king Nvidia Corp. $(NVDA)$ is up about 187% over the past 12 months.
In contrast, Qualcomm is up about 42% in the past year.
Stacy Rasgon, a Bernstein Research analyst, said in a recent note that he is warming up to a "burgeoning narrative around AI-related smartphone content and potentially, AI PCs," with regards to Qualcomm.
"On the former we believe incremental content is an avenue to monetization over time; the latter appears to be option value at this point but could garner more attention as the Snapdragon X Elite platform ramps," he said in a note to clients.
It's still too soon to tell, but over the next few quarters, investors should get some more clarity on whether having AI capabilities helps the moribund smartphone market, and as a result, Qualcomm.
-Therese Poletti
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May 01, 2024 19:47 ET (23:47 GMT)
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