Should investors be worried about the Qualcomm sale? 3 reasons why I am not selling this AI stock.

The recent selloff in tech stocks hasn’t gone away Qualcomm (NASDAQ: QCOM) unharmed. Although the stock price has stopped falling significantly for now, it has fallen 30% since peaking in June when investors started selling artificial intelligence (AI) stocks.

However, as a Qualcomm shareholder, my confidence in the company has not waned even as the semiconductor stock has retreated. Instead, I plan to keep holding on, and three key reasons explain why.

1. Industry leadership

For all the competitive threats, Qualcomm remains the leader in smartphone chipsets. Just like Nvidia dominates the AI ​​chip market, Qualcomm has consistently remained at the forefront of smartphone chipset competition, continuing to innovate and stay ahead of well-funded and highly motivated competitors.

MediaTek competes with it in the 5G space, albeit at the lower end. Also, Apple has been trying to free itself of the need for Qualcomm since it bought Intelthe smartphone chipset business. However, the fact that it continues to renew its supply agreement with Qualcomm implies its failure to match its technical prowess.

Moreover, with the 5G upgrade cycle underway, Qualcomm’s next upgrade cycle may come from AI. The launch of the Snapdragon 8 Gen 3 chip brings AI functionality to smartphones, which has become increasingly critical for more users.

2. Other products

Such innovation has also led Qualcomm to develop new lines of business and create products outside the realm of smartphone chipsets.

As the name suggests, the IoT segment makes products for Internet of Things applications. Such products support smart homes, smart cameras, remote station monitoring and robotics.

Qualcomm has also built an automotive segment. Its digital chassis takes the company into the autonomous driving space, while a digital cockpit supports safety, navigation and car communications.

More recently, he has applied his growing prowess in AI to develop chips for personal computers. While it’s unclear how well it will compete with incumbents like Intel and Advanced microdevicesits Snapdragon platform offers high performance, detailed images and long battery life.

Of course, the handset segment continues to lead the company, accounting for 63% of revenue in the third quarter of fiscal 2024 (ended June 23). However, IoT accounted for about 15% of revenue, and thanks to an 87% year-over-year growth rate, the automotive industry now accounts for 9% of the company’s revenue.

3. Reasonable valuation

Moreover, unlike its chip peers, Qualcomm has maintained a low valuation. Its price-to-earnings ratio is currently 21. This leaves it with the lowest earnings multiple among major chip stocks.

The story continues

Of course, in the recent past, Qualcomm stock was cheap for a reason. As the 5G upgrade cycle ran its course and smartphone sales declined, revenue growth turned negative as the chip stock entered a cyclical decline, a periodic occurrence for most chip stocks.

However, revenue growth returned to double digits, rising 11% annually to $9.4 billion in fiscal Q3. Qualcomm also capped its cost and expense growth, allowing net income to reach $2.1 billion, up 18 percent from year-ago levels.

This makes Qualcomm particularly cheap when growth rate is considered. Additionally, Qualcomm has grown at a much faster rate during upgrade cycles, meaning investors could be in for an unprecedented bargain as more smartphone users switch to 5G.

Buy Qualcomm

Amid the share price decline, investors should consider Qualcomm stock. Cyclical declines have hurt the stock, and Nvidia remains the leader in AI, but Qualcomm looks poised to inspire another upgrade cycle thanks to AI. And it has reduced its reliance on the handset segment by competing in the IoT, automotive and PC businesses.

Moreover, the 21-earnings multiple looks more and more like a bargain. Such attributes should ultimately boost Qualcomm’s stock price over time. When such benefits are combined with a bargain valuation, investors should consider adding shares.

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Will Healy has positions in Advanced Micro Devices, Intel and Qualcomm. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.

Should investors be worried about the Qualcomm sale? 3 reasons why I am not selling this AI stock. was originally published by The Motley Fool