Qualcomm (QCOM 1.45%) could get its first mobile chip sales boost of the year from Samsung, which just announced its new phone lineup. This year, Samsung's Galaxy devices (the S24 series) are touting lots of on-device AI – which is thanks in large part to Qualcomm's Snapdragon chipsets.
Here's why this could help make Qualcomm a top AI stock for 2024.
(Re)-capturing some market share with new tech features?
Samsung's flagship Galaxy mobile devices have some useful new apps and features launching this year.
An on-device app using AI can translate calls, conversations, and texts in real-time. This uses a type of AI inference, which pulls an algorithm that has been trained in a data center onto to the phone itself, which can increase privacy and reduce network data usage.
In tandem with Alphabet, Android Auto on Galaxy has new capabilities that summarize incoming messages, and Google's Circle to Search adds new image search capabilities to help users quickly find info online.
And for in-house Samsung creations, Samsung Note and ProVisual Engine are getting an infusion of generative AI to boost productivity for business and creative work.
On their own, these aren't big sweeping changes for Samsung's devices. But taken together, the company is clearly trying to woo new users or persuade existing ones to upgrade their old phones because of generative AI. Samsung needs to show off, as it has been ceding market share to Apple's iPhones in recent years. Tech researcher IDC recently said the iPhone overtook Samsung as the world's top-selling smartphone, a title Samsung held for over a decade. At the very least, Samsung is no doubt keenly interested in stopping the tide from flowing out further.
For Qualcomm, this all means another year of high-end chip revenue from 5G connectivity chipsets, plus Snapdragon 8 Gen 3 (a combo of CPU, GPU, and neural processor for AI work) that power all this new AI wizardry. CFO Akash Palkhiwala has said that this proliferation of new semiconductor technologies, and Qualcomm's work at the base software layer to unlock the power of AI on mobile devices, could lead to about a 10% per year increase in average selling price (ASP) for its chips.
In late 2022, Qualcomm inked an extension (through 2030) to its tech supplier agreement with Samsung, and in 2023 tied up an extension of the 5G modem chipset deal with Apple through 2026. These deals should keep business stable and rising as the new AI era dawns.
Mobile mounts a recovery
Of course, the big story clouding Qualcomm's fate for well over a year now has been a massive decline in the smartphone industry after a pandemic era spending spree came to an end.
But as I wrote recently, Qualcomm has predicted a new upcycle is only just beginning for its smartphone-centric business. In addition, myriad new mobile devices are making use of Qualcomm AI chips. This next growth cycle could go a long way toward diversifying Qualcomm's business.
The stock looks downright reasonable too, priced well below the one-year estimated earnings multiple of the S&P 500: It's roughly 15 for Qualcomm and 22 for the index. Qualcomm stock is also paying an above average dividend yield of 2% and buying back shares.
It all adds up to what could be a great AI stock in the years to come, especially for investors looking for names that haven't already skyrocketed on hype.
