Early in 2023, mobile chip design leader Qualcomm (QCOM 0.22%) quietly announced it had shrunk down an AI algorithm small enough to fit on an Android phone. It's a potential breakthrough moment for consumers and cloud computing companies alike. Rather than needing to rely on expensive-to-operate data centers to run new generative AI services (like ChatGPT), Qualcomm is hinting at bringing AI to the extremely efficient smartphones and other mobile devices we have come to rely on every day.
Few paid much attention, especially after Nvidia's epic quarterly earnings report and mind-bogglingly good financial guidance for the rest of 2023, driven of course by AI training sales to data centers.
But Qualcomm and social media titan Meta Platforms just teamed up to bring AI-powered services to a device near you. Here's what you need to know about the AI sleeper stock Qualcomm.
Meta unleashes a ChatGPT 'killer'
iPhone developer Apple gets lots of credit for advancing mobile semiconductor technology. But Qualcomm, often the competing chip designer that powers many Android devices the world over, is no slouch. When it demonstrated the popular AI text-to-image generator Stable Diffusion on an Android phone early this year, it was a first-to-the-punch moment for Qualcomm.
Apple is working on similar technology, but it seems Qualcomm is leaning hard into its research in shrinking down massive AI algorithms so that they can be operated on something as small as a smartphone.
This is significant because all generative AI services are trained in data centers, and at this point, the inference (once the model is trained and put into use) is also handled at the data center level. For example, when you prompt ChatGPT to complete some work, your request is sent over the internet to a remote data center, an answer is computed, and that answer is delivered back to you via the internet -- not exactly an efficient process.
Thanks to Qualcomm's work, though, this process can soon be done from a mobile device, once an AI model is trained and then the algorithms deployed to said device. This reality is thanks in no small part to a team-up between Qualcomm and notable Apple rival Meta. Meta has decided to make its large language model (or LLM, the AI technology framework that many generative AI services utilize) Llama 2 open source.
In a prepared statement, Qualcomm Senior Vice President and General Manager of Technology, Planning, and Edge Solutions Businesses Durga Malladi had this to say:
We applaud Meta's approach to open and responsible AI and are committed to driving innovation and reducing barriers-to-entry for developers of any size by bringing generative AI on-device ... To effectively scale generative AI into the mainstream, AI will need to run on both the cloud and devices at the edge, such as smartphones, laptops, vehicles, and IoT devices.
Qualcomm, the AI bet few investors know about
If this breakthrough pans out, Meta has a lot to gain. It's no secret that Meta is trying to stimulate interest in the augmented and virtual reality market with its Quest headsets, a market Apple is poised to enter next year with the Vision Pro. And Meta has taken hits from Apple in recent years as the iPhone maker has enacted policies to limit Meta's ability to generate ad revenue from iOS users. Perhaps new AI services available directly on Android devices can help Meta land a counterpunch.
Qualcomm looks like the real AI sleeper stock, though. The company best known for Android phone components has been working hard to diversify its business in recent years, including into PCs and laptops. In fact, in 2024, new laptop models running Microsoft Windows will begin arriving on shelves, powered by Qualcomm's efficient Snapdragon mobile processor technology found in Android mobile devices. This could be a similar experience to one Apple users have grown to admire in the new MacBooks, powered by Apple M-series chips, the last few years.
Also in 2024, Qualcomm will support the deployment of Meta's Llama 2 on flagship Android phones and PCs.
2023 is the year consumers around the world became aware of the proliferation of AI software, but this secular growth trend is only just beginning a new wave of expansion. Qualcomm's stock has been beaten down by the sharp downturn in smartphone sales in the wake of the pandemic, but it could be gearing up for a new growth cycle if it can capture sales in new markets for on-device AI deployment. It will be a bumpy road, but I like Qualcomm stock at just 13 times expected fiscal year 2024 earnings per share.
