Investor Stanley Druckenmiller has dire news for many investors. He told Fortune that he believes the stock market is likely headed for an extended period of flat growth, similar to the 1966 to 1982 period when the Dow Jones Industrial Average made no net gains.
Nonetheless, stocks such as Berkshire Hathaway and Walmart managed to produce considerable growth during this period. This bodes well for the emerging growth stocks of today, and Qualcomm (QCOM -0.20%) has positioned itself exceptionally well to succeed in a similar market.
What Qualcomm offers
Qualcomm leads the way in 5G, so much so that both Samsung and Apple use Qualcomm's Snapdragon chipsets in all their 5G smartphones, and sources close to the matter indicate that Apple's efforts to catch up to the chipmaker have failed.
Nonetheless, Qualcomm is not content with this market lead. The company envisions a future where many smartphone functions of today will be incorporated into other devices. To this end, it has diversified into the Internet of Things and the automotive space, making it one of the more prominent self-driving car stocks.
Still, Qualcomm's most notable move is likely the one into the metaverse. Fortune Business Insights forecasts a compound annual growth rate of 48% for the metaverse through 2029. This would make it a $1.5 trillion market, and Qualcomm has already begun to stake its claim.
The company provides the chipsets that power Meta Platforms' Oculus virtual reality headsets. According to IDC, Oculus dominates this market and leverages Meta's vast social networks, a factor that could bode very well for the chip designer.
Qualcomm also invested $100 million in its Snapdragon Metaverse fund. While one cannot predict where this research will lead, it could result in major opportunities to capitalize on the metaverse.
Current and future growth
As it taps these markets, Qualcomm generated $33 billion in revenue in the first nine months of fiscal 2022 (which ended June 26). This was 36% more than it brought in in the first three quarters of fiscal 2021. Qualcomm also grew its net income by 63% during this time. It reached $10 billion as the company limited growth in costs and expenses to 19%.
Still, while it has done well in managing the chip shortage and supply chain struggles, Qualcomm lowered fiscal Q4 revenue guidance to between $11 billion and $11.8 billion. This would represent a 22% increase at the midpoint, a significant but lower level of growth. Such news led to some pressure on the stock, which dropped by 11% over the last 12 months.
Nonetheless, it continues to outperform the S&P 500. Also, it sports a P/E ratio of just 11, well under Apple's 25 earnings multiple. Admittedly, this may relate to its China exposure. China accounted for two-thirds of Qualcomm's revenue in fiscal 2021, a concern given U.S.-China relations are strained.
But assuming Chinese sales don't disappear, the 11 P/E ratio limits its downside. Combined with Qualcomm's rapid revenue and earnings growth, the increased profits should place upward pressure on its stock price, even in a bear market.
Consider Qualcomm despite the middling overall stock market
Investors do not yet know how long it will take the overall market to return to growth. However, Qualcomm is poised to grow, even in the current market environment. Its 5G dominance will serve it well during the upgrade cycle. Also, as it capitalizes on the metaverse and other applications, its low P/E ratio increases the likelihood that the semiconductor stock will grow despite market conditions.
