Qualcomm, a leading chip manufacturer, has been facing a correction in its stock price after reaching a peak in June. Despite trading over 20% below its recent high, Qualcomm has shown strength by surpassing revenue and earnings estimates in its recent earnings report. Although the stock may seem undervalued, there are promising indicators in various business segments that suggest a positive outlook for the company.
**Strong Growth Potential in Key Segments**
One of Qualcomm’s key areas of growth is its automotive business, which reported an impressive 87% year-over-year growth. With the auto industry focusing on developing “smarter cars,” Qualcomm is well-positioned to benefit from this trend. Additionally, the Internet of Things (IoT) segment, although experiencing an 8% decline in revenue, is showing promise with the introduction of new extended reality (XR) categories like Meta’s Ray-Ban smart glasses. These new products indicate potential growth opportunities for Qualcomm in the near future.
**Favorable Valuation and Dividend Yield**
Looking at Qualcomm’s financial metrics, the company’s forward price-to-earnings (PE) ratio stands at 13.5, making it one of the most attractively valued stocks in the chip industry. Furthermore, Qualcomm offers a dividend yield of over 2% and has a history of consistent dividend growth. For long-term investors seeking value opportunities, Qualcomm’s current stock price dip presents a favorable entry point.
**Tailwinds Driving Growth**
Qualcomm benefits from several tailwinds that are propelling its growth trajectory. The automotive segment, in particular, continues to drive revenue growth, with a substantial increase in automotive revenue reported in the recent quarter. As automakers strive to incorporate advanced features into their vehicles, Qualcomm stands to gain from this long-term trend. Additionally, the introduction of new IoT products, such as smart glasses, presents further growth opportunities for the company.
**Positive EPS Growth Trajectory**
Qualcomm’s earnings per share (EPS) growth outlook is robust, with double-digit growth estimates for the coming years. The company’s EPS estimate for FY26 is $12.5, resulting in a low forward PE multiple of 13.5. Moreover, Qualcomm has seen a significant number of upward revisions for earnings and revenue forecasts in recent months, indicating positive momentum for the stock.
**Risks to Consider**
Despite its strong growth prospects, Qualcomm faces risks that could impact its performance. One key risk is the potential competition from tech giants like Apple and Samsung, who are increasingly developing their own chips for their devices. Additionally, uncertainties surrounding the growth trajectory of the automotive and IoT segments pose challenges to Qualcomm’s revenue projections. Lastly, there is a risk that Qualcomm’s stock could become a value trap if Wall Street does not increase its valuation multiple in the future.
**Conclusion**
In conclusion, Qualcomm’s stock presents an attractive investment opportunity for long-term investors. With strong growth potential in key segments, a favorable valuation, and a solid dividend yield, Qualcomm is well-positioned to deliver value to shareholders. While there are risks to consider, the overall outlook for Qualcomm remains positive, supported by its robust EPS growth trajectory and positive market sentiment. Investors looking for a value bet in the chip industry may find Qualcomm to be a compelling option for their portfolios.