I am bullish on Qualcomm (QCOM). It is the world’s No. 2 supplier of smartphone processors. Selling processors and 5G chipsets is a $16.5-billion annual business for Qualcomm.
This company’s stock is trading at 26.8% discount to its 52-week high of $167.94. (See Analysts’ Top Stocks on TipRanks)
Snapdragon Brand Is Strong
Qualcomm’s market share in smartphone application processors is down to 24%. On the other hand, most high-end and mid-range Android phones and tablets still use Qualcomm’s Snapdragon processors.
Mediatek (MDTKF), the No. 1 company now, sells Dimensity processors, which are usually used inside sub-$300 phones and tablets. Microsoft’s (MSFT) new $700 dual-screen smartphone uses a 5G-enabled Snapdragon 855 System-on-Chip.
Qualcomm’s refusal to challenge Mediatek’s dominance in entry-level smartphone processors is why QCOM has a net income margin of 28.3%. The net income margin of Mediatek is 19.1%.
Higher profitability is preferable over market share numbers. The smartphone application processor industry is expected to become a $38.2-billion business by 2023.
Qualcomm’s foundry partners are TSMC (TSM) and Samsung. There’s no need to worry that Qualcomm might suffer a supply shortage of Snapdragon processors.
Windows 11, Chromebook Tailwinds
The commercial launch of Windows 11 on October 5 is a solid tailwind for Qualcomm’s Snapdragon 7C processors for laptops and desktop computers. The new HP (HPQ) 14 Windows 11 laptop is powered by an 8-core Snapdragon 7C Gen 2 processor.
Qualcomm is now selling TPM 2.0-compliant processors for the $161.9-billion personal computer industry. The Snapdragon 7C processor is also used in some Chromebooks. Sales of Chrome OS laptops are growing at 35% CAGR.
Forty million Chromebooks are expected to be sold this year. Many of those would be powered by Qualcomm’s Snapdragon 7C.
Affordable Valuation Ratios
The 14.1% three-month decline of QCOM has made it more affordable. Its forward P/E is only 13.3x, and its TTM Price/Sales is 4.3x. These ratios are much lower than Nvidia’s (NVDA) 44.2x and 23.5x.
The Piotroski F score of QCOM is 7, indicating that it has a robust financial health, and offers excellent investment value.
Wall Street’s Take
The consensus among Wall Street analysts is that TSM is a Strong Buy, based on 10 Buys and three Holds. The average Qualcomm price target is $176.54, implying 43.6% upside potential.
Qualcomm is a good growth stock. Its processors and 5G chipsets are now being sold to PC and smartphone manufacturers.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
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