Qualcomm (QCOM +2.05%) stock surged 11% higher on Oct. 27. Investors again showed interest in the stock after it released its own data center artificial intelligence (AI) chips. Although that move puts it in direct competition with heavyweights like Nvidia and Advanced Micro Devices, demand is such that Qualcomm still could succeed.
The problem comes with its stock and how investors must now assess the opportunity. Does the Oct. 27 surge in the stock price mean Qualcomm has turned a corner, or have the shares moved too far and too fast?
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Qualcomm and its stock
Among the biggest semiconductor stocks, few have struggled more than Qualcomm. It remains the leading producer of smartphone chipsets and has maintained a technical lead in that niche for decades despite the competition.
Nonetheless, customers have not taken to AI-enabled phones like they did with 5G or other technical improvements. Thus, the current upgrade cycle has not been as robust as past cycles. Also, it appears Apple is finally going to drop Qualcomm as a chipset provider, taking away a critical customer.
Additionally, China is Qualcomm's largest revenue source. This leaves the company particularly vulnerable as the United States' tenuous relationship with the People's Republic brings tremendous uncertainty to its business.
Despite those challenges, Qualcomm's net income grew to almost $8.7 billion in the first nine months of fiscal 2025 (ended June 29), a 20% yearly increase. Additionally, its price-to-earnings (P/E) ratio is just 17, far below the S&P 500 average of 32 for stocks such as Nvidia or AMD.
The improving case for Qualcomm stock
Furthermore, the stock is up slightly over the past year, leaving investors to ponder whether the news may have sparked the beginnings of a long-awaited bull market in Qualcomm stock.
Qualcomm has worked for years to diversify beyond smartphone chipsets. With that, it moved into the Internet of Things (IoT) and automotive. Although those segments make up a combined 23% of Qualcomm's revenue, they are growing faster than the still-dominant handset segment. Moreover, Qualcomm has also ventured into making PC chips, and given that, this move into AI accelerators is probably not surprising.
Its first AI accelerator, the AI200, will come out in 2026. It is a rack-scale solution designed to run at a lower cost while still offering optimized performance for large language models (LLMs) and AI inference. It also plans to bring to market an upgraded AI250 accelerator in 2027 that will offer 10x the memory bandwidth of the AI200.
NASDAQ: QCOM
Key Data Points
Given the rapid expansion of the AI accelerator market, one can understand Qualcomm's interest. According to Grand View Research, the compound annual growth rate (CAGR) for the AI chip market is estimated at 29% through 2030.
Qualcomm's new releases and the industry growth sound promising. Nonetheless, in addition to Nvidia and AMD, investors should remember that Alphabet, Amazon, Microsoft, and OpenAI are also developing AI accelerators. With that intense competition, it is unclear if or how much Qualcomm's solution will ultimately stand out. Such uncertainty may make it difficult for investors to determine whether that industry can spark a bull market in Qualcomm stock or if they should stay on the sidelines.
Has Qualcomm stock turned a corner?
It is likely too early to tell whether the AI chip release means Qualcomm stock has turned a corner, but the behavior of other AI stocks suggests more gains are coming for Qualcomm. Admittedly, Qualcomm stock has struggled for years amid the state of its smartphone chipset business and its geopolitical challenges.
However, the stock has not yet made huge gains over the past year despite the Oct. 27 buying spree. Moreover, the 17 P/E ratio makes Qualcomm far cheaper than its largest competitors in the AI accelerator space. Furthermore, Qualcomm's net income has increased significantly without the help of an AI accelerator product.
Hence, given the low valuation and rapid income growth, the move into AI accelerators could be just the catalyst Qualcomm's shares need to move higher.
