Investors looking to buy into AI stocks, particularly semiconductor stocks, should look beyond the biggest names like Nvidia or Broadcom. Additionally, the surge in memory chipmaker's values amid the push for more AI compute power has left those stocks looking fairly expensive.
But investors with just $150 can still buy a great AI chipmaker. Despite a disappointing outlook for the next year, Qualcomm (QCOM 2.15%) looks like a no-brainer buy for patient investors who can withstand a bit of financial pressure in the near term.
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AI creates near-term headwinds but long-term tailwinds
The growing demand for artificial intelligence compute has created an interesting challenge for Qualcomm.
The chipmaker generates the vast majority of its revenue from the sale of wireless handsets. That stems from both licensing its intellectual property for 3G, 4G LTE, and 5G chipsets as well as making its own baseband chips and mobile processors. Unfortunately, the smartphone industry is facing pressure due to the rising cost of memory chips, a key component. As a result, Qualcomm warned that smartphone volume will decline this year, pushing its revenue lower.
Memory chips have climbed in price because AI accelerator chips and GPUs are packaged together with lots of memory to facilitate faster and more effective large language model training and inference. But supply hasn't caught up with demand. Memory chipmaker Micron expects supply to remain tight through the end of calendar 2026. As a result, Qualcomm could see pressure on its revenue through the middle of its fiscal 2027 as memory chip supply slowly ramps up. Management's second-quarter outlook calls for a 3.5% year-over-year decline in total revenue.
NASDAQ: QCOM
Key Data Points
But Qualcomm has worked to diversify beyond smartphones. Its automotive segment continues to grow quickly and should remain unaffected by the memory chip shortage. Likewise, its Internet of Things (IoT) business should keep growing over the next few years. Qualcomm is also pushing into the data center chip business with a pair of chips designed for AI inference. That could be a meaningful growth driver over the next few years, partially offsetting the pressure on the handset business.
In the long run, however, Qualcomm looks like a great opportunity. As AI inference moves from something done exclusively on data center servers to something that could be run on devices, Qualcomm is in a great position to capitalize long term. Its Snapdragon mobile processors are some of the best high-end chips for smartphones. On-device AI could increase demand for more high-end devices, meaning more devices with Qualcomm's chips inside.
Importantly, management expects the setback in smartphone production to be a temporary headwind. It maintained its 2029 revenue outlook, which means the long-term potential for the stock remains intact. While the stock certainly deserved a haircut in price after the news, the market may be giving patient investors a great opportunity right now. At less than $140 per share as of this writing, investors are paying just 12 times forward earnings expectations. And those earnings should show meaningful growth in the years to come after resetting this year amid the smartphone headwind.
