Qualcomm’s (NASDAQ:QCOM) profits are expected to increase significantly next year. All thanks to layoffs, its low valuation, and a recent deal to continue supplying 5G chips to Apple (NASDAQ:AAPL) through 2026. Plus, the demand for QCOM’s chips should see a boost from the artificial intelligence boom, and even from automakers.
Given these points, I recommend that long-term investors buy QCOM stock at its current levels.
Qualcomm’s Bottom Line, Its Layoffs and Its Low Valuation
Analysts, on average, expect QCOM’s earnings per share to climb to $9.16 in 2024, an increase of 12.5% over estimates for $8.31. Although the company’s 2024 EPS is expected to be well below the EPS of $12.53 generated in 2022, its bottom line is trending in the right direction.
Potentially fueling its bottom line, the company will layoff 1,258 of its employees. Expected to be implemented in December, the dismissals should boost QCOM’s bottom line, once the firm is done paying the charges associated with the layoffs.
Also noteworthy is that Qualcomm’s forward price-earnings ratio of 11.8, which may not factor in the company’s layoffs, is quite low.
QCOM’s Deal With Apple
In September, a major problem for Qualcomm and QCOM stock disappeared when the company announced it would continue to provide Apple with “5G chips until at least 2026.” The agreement is expected to be worth “billions of dollars” and eliminated the uncertainty that had previously existed regarding the chip maker’s relationship with Apple.
QCOM’s New Opportunities Fueling Upside
Meanwhile, QCOM, which already provides chips for advanced driver assistance systems and on-vehicle entertainment systems, is looking to significantly increase its revenue from automakers. Specifically, it’s marketing chips to the automakers that will enable the launch of “a car assistant.” The latter system would help drivers complete many errands, such as locating food recipes and sending birthday cards.
Qualcomm is also using its chips to bring generative AI to smartphones. According to the company, its chips can produce “more customized” and quicker AI than cloud-based systems. Moreover, QCOM’s chips will allow users to easily change images and utilize a virtual assistant that has a human-like face and speaks through its mouth, the company noted. Consumers are likely to pay more for phones with such capabilities, enabling Qualcomm to charge a great deal for its chips that enable these features.
Meanwhile, as I pointed out in an April column, the lower power consumption of Qualcomm’s chips makes them well-suited to power AI systems after the latter products have been launched. Since many analysts believe that the demand for such chips will climb meaningfully going forward, selling them can be very lucrative for QCOM in the medium term and the long term.
Cumulatively, I believe that the firm’s new opportunities should meaningfully boost the company’s top and bottom line over the longer term, lifting QCOM stock in the process.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.