Qualcomm’s Current Standing in the Chip Industry

Qualcomm has faced challenges as the chip industry branches out into various sectors.

It’s uncertain how effectively they will compete in the AI accelerator market.

Regardless, their rapid earnings growth and low price-to-earnings ratio make the stock an appealing choice for value investors.

On October 27, Qualcomm’s stock price surged by 11%. This renewed investor interest followed the company’s announcement of its own data center AI chip. They now find themselves in direct competition with notable players like Nvidia and AMD, which could present an opportunity for Qualcomm considering current demand.

The real question for investors is whether this spike signifies a turning point for Qualcomm or if the stock moved too swiftly upward.

Among leading semiconductor companies, Qualcomm has encountered significant struggles. Nevertheless, it remains a key player in smartphone chipsets, maintaining a technological edge in its niche for decades, despite the fierce competition.

Nonetheless, customers haven’t adopted AI-enabled phones as enthusiastically as they did for 5G and other advancements. This has resulted in a less vigorous upgrade cycle compared to previous ones. Additionally, Apple seems to be moving away from relying on Qualcomm for chipsets, posing a risk to a vital customer base.

China, being Qualcomm’s largest revenue source, adds another layer of vulnerability. The strained relations between the U.S. and China create uncertainty about Qualcomm’s operations in that region.

Despite these hurdles, Qualcomm’s net income rose to nearly $8.7 billion in the first nine months of fiscal 2025, marking a 20% year-over-year increase. The company also sports a P/E ratio of just 17, compared to Nvidia and AMD’s average of 32.

Recently, Qualcomm’s stock has seen slight gains, leading to speculation about whether this marks the beginning of a long-awaited bull run for the company.

Qualcomm has long aimed to diversify its offerings beyond smartphone chipsets, venturing into the Internet of Things (IoT) and automotive sectors. These areas now contribute 23% of Qualcomm’s revenue and are experiencing faster growth than the smartphone segment. Their entry into PC chip manufacturing makes the move into AI accelerators somewhat expected.

The first AI accelerator, named AI200, is anticipated to be released in 2026. Designed to be cost-effective, it aims to optimize performance for large-scale language models and AI inference. An upgraded AI250 accelerator is also on the way for 2027, promising to deliver ten times more memory bandwidth than its predecessor.

Qualcomm’s interest in the AI accelerator market is logical, considering its rapid expansion. Research suggests that the AI chip market could see a compound annual growth rate of 29% until 2030.

While Qualcomm’s new initiatives and industry growth appear promising, they must also contend against major players like Alphabet, Amazon, Microsoft, and OpenAI, all of which are developing their own AI accelerators. In such a competitive landscape, it remains unclear if and how Qualcomm’s products will distinguish themselves.

This uncertainty complicates investors’ decisions, as they must weigh the risk of a potential bull run against the need for caution. While it is perhaps premature to declare that the launch of the AI chip will signal a notable shift for Qualcomm’s stock, trends in AI stocks suggest there may be upside potential.

Qualcomm has struggled for years, wrestling with the state of the smartphone chipset market and geopolitical difficulties. Even with the buying activity seen on October 27, the stock hasn’t demonstrated substantial growth over the past year. With a P/E ratio of 17, Qualcomm remains considerably less expensive compared to its rivals in the AI accelerator sector, especially since its earnings growth has recently surged without the influence of AI-related products.

This means that with its low valuation and impressive earnings growth, branching into AI accelerators could serve as the catalyst needed to elevate Qualcomm’s stock price.

Before making any decisions regarding Qualcomm stock, investors should keep these points in mind.