Scour the news – any news, really – and it won’t take long to see yet another examination of artificial intelligence (AI). Undeniably, the profound societal and economic implications that AI-driven platforms generate sparked intense investor interest. Simultaneously, though, you should avoid overpaying for AI stocks and consider discounted entities like Qualcomm (NASDAQ:QCOM) instead. I am bullish on QCOM stock.
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Step Away from the Usual Suspects
As TipRanks contributor Joey Frenette declared succinctly last month, Nvidia (NASDAQ:NVDA) ranks as a massive AI winner. It’s the gift that keeps on giving. For the year so far, shares have skyrocketed over 200%. At the same time, a question of valuation exists for NVDA that doesn’t apply to QCOM stock.
For example, while Nvidia may be the hot ticket on Wall Street, it might be too hot. Currently, NVDA trades at a stunning trailing-year earnings multiple of 232x. In addition, shares run at a forward multiple of around 58x. In contrast, the underlying semiconductor industry features an average trailing multiple near 30x and an average forward multiple of 28x.
In fairness, the calculations for earnings multiples – while important and typically informative – do not tell the whole story. For Nvidia, proponents can argue that despite its rich premium, the company offers a competitive edge against would-be rivals. Also, because AI accelerates at a bewildering magnitude, analysts’ assessment of NVDA may need readjusting.
Put another way, Nvidia may deserve its own categorization. It’s an elite among elites.
While investors readily praise NVDA, it’s extraordinarily difficult for a Usain Bolt to shave milliseconds off a record-breaking sprint. Instead, it’s far easier to shave whole seconds off a modestly-trained amateur athlete.
Now, there’s no disrespect aimed at QCOM stock in this imperfect analogy. It’s just that it doesn’t get the attention that it deserves. Still, contrarian investors can exploit this oversight.
Qualcomm Flexes Its AI Muscles
While NVDA may have gained over 200% in the year so far, QCOM stock is behind a country mile and then some. During the same period, shares gained just under 23%. However, it’s been on the move over the past several weeks. Fundamentally, Qualcomm justifies the optimism by flexing its own AI muscles.
Throughout this year, intense interest has focused on generative AI, or algorithms designed to create content, which includes text, images, and even music. As the underlying tech advances, the possibilities could truly be limitless.
Here, Qualcomm has partnered with Meta Platforms (NASDAQ:META) to develop the latter entity’s Llama 2 large language model. Specifically, Qualcomm aims to optimize the execution of Llama 2 to operate on-device without depending solely on cloud networks.
According to Qualcomm’s website, “The ability to run generative AI models like Llama 2 on devices such as smartphones, PCs, VR/AR headsets, and vehicles allows developers to save on cloud costs, and to provide users with private, more reliable, and personalized experiences.”
In addition, Qualcomm has invested in machine learning technologies that offer significant implications for the Internet of Things (IoT), mobile applications, and autonomous driving solutions. While other AI enterprises generate exciting headlines, Qualcomm is quietly at work building the architecture of digital intelligence. Thus, QCOM stock warrants consideration.
An Unignorable Discount
Finally, QCOM stock offers a discount that’s quite frankly unignorable. First, Qualcomm continues to grow steadily. In the fiscal year ended September 2022, it posted revenue of $44.2 billion, up from the $33.57 billion posted a year earlier. However, QCOM trades at a trailing-year sales multiple of 3.5x. In contrast, the average revenue multiple for the semiconductor industry stands at 4.6x.
Even better, the market prices QCOM stock at a forward earnings multiple of 16x for September 2023 and 13.8x for September 2024. On the other hand, the average forward multiple for the semiconductor space is 28x. With all the positives that the underlying tech firm brings to the table, it’d be almost criminal not to at least bring QCOM in for a discussion.
Is QCOM Stock a Buy, According to Analysts?
Turning to Wall Street, QCOM stock has a Moderate Buy consensus rating based on 15 Buys, six Holds, and zero Sell ratings. The average QCOM stock price target is $137.04, implying 5.3% upside potential.
The Takeaway: QCOM Stock Gives What You Need for Cheap
Undeniably, no one will confuse QCOM stock as the hot ticket in town. That status belongs to Nvidia or some other high-flying AI startup. However, with the hype train running at full steam, a risk exists of investors overpaying for their innovation. Right now, Qualcomm brings the substance to the table but at a discount. You owe it to yourself to at least consider the opportunity.
