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Qualcomm, the global leader in smartphone chipsets, is set to report its Q1 2024 earnings on May 1st. As the company navigates a challenging smartphone market, investors are closely watching for signs of Qualcomm's long-term growth potential, particularly its ability to capitalize on the rise of artificial intelligence (AI) in edge devices.
While Wall Street is divided on the company's near-term performance, with some analysts anticipating a potential disconnect between optimism and reality, the long-term outlook for Qualcomm appears increasingly promising. The key lies in the company's ability to leverage its expertise in mobile processors and adapt to the evolving technological landscape, where AI is poised to play a transformative role.
Qualcomm's stock has already seen a strong start to 2024, with a 21% year-to-date gain and a 44% increase over the past year. This performance reflects the market's optimism about the company's ability to capitalize on the increasing demand for advanced chipsets and the potential boost from AI.
Bernstein, a leading research firm, believes Qualcomm could see an 18% upside from current levels, highlighting the company's potential as a primary beneficiary of the growing focus on running AI on edge devices rather than in the cloud. As today's computing architectures evolve to include not only CPUs and GPUs but also specialized neural processing units (NPUs) for AI, Qualcomm is well-positioned to meet the rising demand.
"While generative artificial intelligence has been the main topic of conversation for more than a year, the potential of artificial intelligence in edge devices is now gaining momentum as both companies and investors begin to think about how these technologies might eventually reach the masses," the Bernstein analysts wrote.
In addition to the AI-driven opportunities in the smartphone market, Qualcomm is also making inroads into the personal computer (PC) segment with its Snapdragon X Elite chips. These ARM-based processors are designed to offer performance that matches and even surpasses the advanced chips from industry giants Intel and AMD.
While the exact scale of the demand for ARM-based PCs is yet to be determined, analysts estimate that Qualcomm could potentially add several billion dollars to its annual revenues and up to a dollar to its earnings per share if it can successfully capture a meaningful share of this emerging market.
Despite the long-term optimism surrounding Qualcomm's AI-powered future, the company's near-term performance is not without its challenges. JPMorgan analysts have raised concerns about the strength of the expected recovery in the smartphone market, noting that data from the Chinese market in particular has raised some red flags.
The bank predicts that Qualcomm's revenues in the March quarter will be $9.5 billion, slightly above the midpoint of the company's forecast and the Wall Street consensus, which both stand at $9.3 billion. However, JPMorgan expects Qualcomm's forecasts for the June quarter to be in line with analysts' expectations at $9.1 billion, which may not be enough to satisfy investors.
The limited potential for a positive boost from the various factors, such as the smartphone market, despite the strong performance of the stock to date, may pose a challenge to the stock price in the short term. While JPMorgan does not expect a decrease in profit forecasts, the analysts wonder if Qualcomm's current price is not too high.
Qualcomm's Q1 2024 earnings report will be a crucial moment for the company, as it navigates the complexities of the smartphone market while positioning itself for long-term growth driven by the rise of AI in edge devices. The company's ability to capitalize on its technological expertise and adapt to the evolving industry landscape will be key to unlocking the true potential of its AI-powered future.
Investors should closely follow Qualcomm's performance and strategic initiatives, as the company's success in the AI space could have far-reaching implications for its competitive positioning and financial prospects in the years to come.
Total Score
Strengths
Earnings are forecast to grow
Upgraded on attractively valued
Investors confidence is positive
Trading below its fair value
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