The 1 Best Artificial Intelligence (AI) Stock That Could Start Rising Rapidly After July 31

Shares Qualcomm (QCOM 2.66%) are up solidly over 20% for the year, despite being down 20% from a 52-week high set on June 18.

However, there is a good chance that the semiconductor company’s stock will be able to pull itself out of the slump when it reports its fiscal third-quarter 2024 results on July 31. Let’s see why that might be the case.

Growing demand for smartphones could help Qualcomm achieve better-than-expected results

Qualcomm reported its fiscal second-quarter 2024 results (the three months ended March 24) on May 1. The company’s revenue was flat year over year at $9.4 billion. Revenue from its mobile phone business was also flat year over year at $6.2 billion. Qualcomm thus generates nearly two-thirds of its revenue from smartphone chips, meaning its fortunes are tied to the health of that market.

The smartphone market wasn’t in great shape last year, as shipments fell 3% due to weak demand, according to research firm IDC. However, 2024 is shaping up to be a better year, with smartphone shipments up 7.8% in Q1 and then 6.5% in Q2.

IDC indicates that smartphones equipped with generative artificial intelligence (AI) features are growing faster than expected, with shipments expected to reach 234 million units in 2024. Even then, AI smartphones will have a lot of room to grow, as they are expected to account for 19% of the total market this year.

Stronger-than-expected adoption of AI smartphones should ideally benefit Qualcomm, as it controlled 23% of the smartphone processor market at the end of 2023. More importantly, Qualcomm executives indicated on its May earnings call that it was seeing strong adoption of generative AI smartphones in China, with premium devices from manufacturers like Xiaomi, OnePlus, Vivo, and Huawei gaining popularity.

Notably, Xiaomi and Vivo saw significant increases in shipments last quarter. While Vivo’s smartphone shipments were up 22% year-on-year, Xiaomi saw a 27% year-on-year increase. The strong shipment growth seen by these Chinese manufacturers bodes well for Qualcomm as it supplies them with its AI-focused smartphone chips.

The company had forecast $9.2 billion in revenue for the fiscal third quarter when it last reported results. That would translate to year-over-year growth of 9%. Analysts expect Qualcomm to report $2.25 in earnings per share on revenue of $9.21 billion, in line with the company’s forecasts. However, strong growth in AI smartphone shipments in the latest quarter could help Qualcomm beat Wall Street forecasts.

More importantly, Qualcomm can maintain a faster growth rate in the long term thanks to the rapid adoption of AI-enabled smartphones.

The overall picture seems clear

IDC had previously forecast shipments of 170 million AI smartphones this year. But it has significantly raised its forecast, suggesting that consumers are embracing the technology faster than expected.

Generative AI-enabled smartphone shipments could increase from an estimated 234 million units in 2024 to 912 million units in 2028. This translates to a remarkable compound annual growth rate of 78% based on shipments of 51 million units in 2023.

Such growth in the AI ​​smartphone market would support a better-than-expected outlook for Qualcomm in next week’s earnings, giving semiconductor stocks a strong chance of resuming growth in 2024.

That’s why now is a good time to buy Qualcomm stock. The stock is trading at 26 times its previous year’s earnings, a discount to Nasdaq100 multiple of the 32 index (as a proxy for technology stocks). It may not be available at such an attractive valuation for long.