With the market taking a beating this year, there have been many opportunities for investors to buy low and sell high. And tech stocks are no exception as many are taking a hit in the current market environment. For value investors, this is the perfect time to strike.
As its stock down over 30% year to date, Qualcomm Inc. (QCOM, Financial) could be an excellent opportunity under these circumstances. The San Diego-based company is a world leader in wireless technologies, with its semiconductors being used in everything from smartphones to connected cars. It also provides 5G solutions.
According to Gartner, the global semiconductor market is expected to decline by 3.6% in 2023 due to tough economic conditions and weakening consumer demand. However, this pullback is expected to be short-lived as the global semiconductor market is projected to generate revenue of $618 billion in 2022. Further, Fortune Business Insights anticipates the market will grow to $1.38 trillion in 2029.
Counterpoint Research says Qualcomm holds 29% of the global semiconductor market share and ranks second among the biggest semiconductor companies. Given the current trends in the tech industry, the company is poised for long-term growth.
Further, the global 5G market is relatively new and growing remarkably. The industry is expected to rise from $5.13 billion in 2020 to $797.8 billion by 2030 at a compound annual growth rate of 65.8%.
Qualcomm should benefit from this growth as its 5G baseband market share increased from 29% in the second quarter of 2020 to 76% in the first quarter of 2021. The company says its 5G modem-RF product is the world's first modem-to-antenna 5G solution.
Financials are moving in the right direction
Qualcomm posted strong fourth-quarter and fiscal year 2022 results in early November. The company reported non-GAAP net income of $3.55 billion, or $3.13 per share, a 22% year-over-year increase that was in line with estimates. Further, revenue of $11.40 billion grew 22.1% from the year-ago period and outperformed the forecasts by $40 million.
For the full year, the company's revenue increased 32% to $44.20 billion, while earnings grew 45% to $12.50 per share.
Qualcomm also disclosed it repurchased $500 million worth of stock, effectively reducing the number of outstanding shares and increasing earnings per share. Buying back stock can also signify management's belief that the stock is undervalued. Share repurchases are a great way to create shareholder value when they are done strategically. Qualcomm appears to be doing so wisely, so investors should benefit.
However, the chipmaker's guidance for the first quarter of 2023 was uninspiring. The company expects to make $9.2 billion to $10 billion in revenue, which is lower than Wall Street's estimates. Non-GAAP earnings are expected to be around $2.25 per share, less than the $3.43 forecasted by analysts.
More than just a chip company
Qualcomm is best known as a mobile chip manufacturer, but the company is making a big push into the automotive industry. Its automotive design-win pipeline is currently valued at $30 billion, and the company's automotive revenue grew from $975 million in 2021 to $1.37 billion in 2022.
The company also recently announced partnerships with two auto industry giants, Mercedes-Benz Group AG (XTER:MBG, Financial) and Renault SA (XPAR:RNO, Financial), for advanced solutions. Qualcomm is making aggressive moves to capture a significant market share in the global autonomous vehicle industry, which Strategic Market Research said is expected to be valued at $196.97 billion by 2030. This equates to a compound annual growth rate of 25.7% between 2022 and 2030.
Qualcomm is betting on the future of the automotive industry. With its experience in mobile chipsets, the company is well positioned to take advantage of the growing market. The company will provide the necessary technology to make it all possible as more cars become connected and autonomous. With its strong presence in both the mobile and automotive industries, Qualcomm is poised for continued growth in the years to come.
Takeaway
Qualcomm is one of the world's largest semiconductor companies. Not only that, but it is also well-versed in autonomous vehicles, artificial intelligence and 5G. The company is also quite diversified and has many essential patents.
The company's financial strength is reflected in its healthy performance and sound balance sheet, not to mention a generous dividend and share repurchase program.
The stock is appealing to value investors because it appears cheap relative to forecasted growth and earnings power over the next couple of years. At the same time, several risks must be considered before investing in Qualcomm, such as intensifying competition, legal risks associated with its patents and reliance on a few key customers.
Overall, Qualcomm is a company with a long history of innovation that appears to be undervalued by the market at current levels.
