Diversification may be the key to this stock’s recovery
- 2025 may be the year that Qualcomm connects with investors.
Will Healy (Qualcomm): Qualcomm (QCOM -0.81%) stock does not look like a winning stock at first glance. It has struggled since the summer, as its 5G-driven growth runs its course. Moreover, Apple (AAPL -1.32%) plans to launch a competing smartphone chipset in 2027, likely ending its relationship with Qualcomm.
Such a move would probably reduce the benefits it would experience from an AI upgrade cycle. In fiscal 2024, its handset segment, which houses the smartphone chipset business, comprised 64% of company revenues, meaning the loss of Apple's business affects its largest revenue source.
However, Qualcomm has long prepared for the day when its chipsets are less in demand. To that end, it has diversified into IoT and automotive, and its car-related segment has experienced particular success. Although its overall revenue grew by only 9% in fiscal 2024 (ended Sept. 29), automotive revenue grew by 55%.
Additionally, Qualcomm released PC chips earlier this year. Its Snapdragon X Elite chips are faster than Apple’s M2 chip in some respects. Also, assuming the rumors that it wants to acquire some or all of Intel (INTC -0.69%) are true, its influence in the chip industry could grow if such a buyout occurs.
Even with these concerns, the semiconductor stock is up by 20% over the last year, even after dropping more than 30% from its June high. That decline has taken Qualcomm's P/E ratio to 18, far below its competitors.
Indeed, Qualcomm’s path is somewhat uncertain as it prepares for a likely loss of Apple’s business and invests more heavily in new market niches. Still, as it builds on its growth in automotive, PCs, and other businesses, investors may want to buy some Qualcomm shares while its earnings multiple is still low.
