Qualcomm's Strong Smartphone Demand: A Buy Opportunity?

Qualcomm (QCOM) shares fell despite reporting robust fiscal first-quarter results and issuing upbeat guidance, leaving investors wondering if the stock is a buy. Let's dive into the company's performance and assess its growth prospects.



Record Revenue and Strong Guidance

For the third quarter in a row, Qualcomm posted double-digit revenue growth, setting a new quarterly record. In its fiscal Q1 ended Dec. 29, revenue jumped 17% to $11.67 billion, easily topping the $10.93 billion consensus. Revenue for its chip segment (QCT) climbed 20% to $10.1 billion, while handset revenue rose 13% to $7.6 billion. The company credited its solid handset revenue performance to higher volumes from premium Android devices, such as the Samsung Galaxy S25, which use its Snapdragon 8 Elite platform. It also noted strong sales to Chinese customers, as the premium part of the market grows in the country.

Qualcomm guided for fiscal Q2 revenue between $10.3 billion and $11.2 billion, equating to growth of 10% to 19%. It is looking for chip revenue between $8.9 billion and $9.5 billion and licensing revenue between $1.25 billion and $1.45 billion. The midpoint of its guidance was solidly ahead of analyst expectations.

Diversification and Growth Opportunities

While Qualcomm's smartphone business remains its core revenue driver, the company is actively diversifying into other markets, such as the automotive and IoT segments. In the first quarter of fiscal 2025, automotive chip revenue soared 61% to $961 million, and IoT revenue surged 36% to $1.5 billion. This diversification helps mitigate the cyclical nature of the smartphone market and provides more stable long-term growth.



However, there are potential risks and challenges in these markets, such as increased competition and technological changes. To maintain its competitive edge, Qualcomm must continue innovating and developing new technologies that meet the evolving needs of its customers.

Valuation and Investment Thesis

Qualcomm trades at a forward price-to-earnings (P/E) ratio of 15 times based on current fiscal year analyst estimates and a price/earnings-to-growth (PEG) ratio of 0.6. Stocks with PEG ratios under 1 are generally viewed as undervalued, while growth stocks often trade at PEG ratios well above 1. This suggests that Qualcomm's stock is relatively cheap compared to its growth prospects.



Given its strong fiscal first-quarter results, upbeat guidance, and attractive valuation, Qualcomm appears to be a compelling buy opportunity. However, investors should monitor the company's progress in diversifying its revenue streams and navigating the cyclical smartphone market. As always, it's essential to do your own research and consider your risk tolerance before making any investment decisions.

In conclusion, Qualcomm's recent dip in share price following its strong earnings report may present an attractive buying opportunity for investors. The company's robust revenue growth, solid guidance, and diversification efforts make a compelling case for its long-term growth prospects. However, it's crucial to keep an eye on the company's progress in these areas and consider your risk tolerance before making any investment decisions.