QUALCOMM Incorporated (NASDAQ: $QCOM) is a leading designer and manufacturer of semiconductors and wireless telecommunication equipment. Based in San Diego, CA, it has transformed the global communication industry with its high-performance, leading-edge AI and low-power chips.
On Wednesday, May 1, 2024, after markets closed, Qualcomm released its second quarter fiscal 2024 results to a positive market reaction.
Qualcomm’s Q2 Results
The company reported great results in the second quarter, with revenue and EPS exceeding their guidance at the higher end and analysts’ forecasts. Revenue grew 1% YoY to $9.4 billion, while GAAP EPS increased 36% to $2.06.
On a non-GAAP basis, EPS grew 13% YoY to $2.44, surpassing estimates of $2.32. GAAP net income came in at $2.326 billion, a 37% increase YoY but below estimates of $2.621 billion. On a non-GAAP basis, net income increased 14% YoY to $2.761 billion.
Segment Performance and Revenue Streams
Qualcomm’s top revenue source was the cloud division, QCT, which saw a 1% increase in revenue to $8.026 billion. The licensing segment, QTL, saw a 2% YoY growth in revenue to $1.318 billion.
When considering QCT revenue streams, handsets remained their most valuable, bringing in $6.180 billion, a 1% YoY increase. However, its most-improved revenue stream was automotive, which saw a 35% growth in revenue to $603 million. The IoT revenue stream saw the second-highest growth, bringing in $1.243 billion, an 11% YoY increase.
Its stellar performance in the second quarter was boosted by tailwinds in China, which comprised 62% of its sales as of the end of fiscal 2023.
Return of Capital
In the second quarter, Qualcomm returned $1.6 billion to its shareholders via $731 million in dividends and $895 million in share buybacks.
Third Quarter Guidance
For the third quarter of fiscal 2024, Qualcomm expects revenue of $8.8B – $9.6B, above the analysts’ forecast of $9.08B at the midpoint. It expects a GAAP EPS of $1.74 – $1.94 and a non-GAAP EPS of $2.15 – $2.35, above the analysts’ non-GAAP EPS forecast of $2.16 at the midpoint.
The upbeat outlook signals a recovery in the smartphone market, Qualcomm’s biggest revenue source, which is in line with the company’s previous forecast of a gradual recovery in 2024.
Operational Highlights and Challenges
The company has been working to diversify its revenue stream, as evidenced by the 35% growth in automotive revenue. This strategy is crucial as it will reduce dependency on the smartphone market, which is highly seasonal and volatile. It also positions the company to capitalize on the wave of tech advancement in the auto industry.
However, the company still faces potential challenges in the future. Key among them is the strained China-US relations. With most of its revenue coming from China, it could pose a major risk to the company if geopolitical tensions between the two nations escalate.
During the earnings call, CEO Cristiano Renno Amon highlighted the company’s achievements in the automotive sector and AI chips. The major surprise of the earnings call was the revelation that their backlog had surged from $30 billion to $45 billion in just 18 months.
Commenting on their progress in the automotive sector, Amon said, “In automotive, the Snapdragon Digital Chassis is the industry’s leading technology solution, and we’re pleased to announce that our design-win pipeline has increased to approximately $45 billion. We’re growing faster than the addressable market and remain on track to achieve more than $4 billion of automotive revenues in fiscal ’26.”
The CEO also highlighted their recent launch of Qualcomm AI Hub, designed to help developers commercialize on-device AI apps. Amon pointed out that it “features a library of approximately 100 pre-optimized AI models for devices powered by Snapdragon and Qualcomm platforms, delivering 4x faster inferencing versus nonoptimized models.”
Chief Analyst Patrick Moorhead of Moor Insights & Strategy stated that the company’s AI capability could lead to a “supercycle” in the second half of fiscal 2024.
QCOM Stock Performance
Following the impressive Q2 results, QCOM shares surged 9.02% a few minutes after the opening bell to $178.92 per share. Since the start of the year, the stock has gained 16.97% and 53.98% in the past 52 weeks, compared to the 23.57% gain of the SPX in the same period.
Short sellers hold 20.22 million of the shares as of March 15, 2024, 1.71% of the floating shares, and 1.71% of the shares outstanding as of April 15, 2024. The company has an intraday market cap of $183.15B, with a forward P/E ratio of 17.45.
Analysts’ Outlook on Qualcomm
According to the opinions of 26 stock analysts, QCOM shares have a moderate buy rating. They forecast a wide range for the stock, with a high of $205 and a low of $120. The average price forecast of $173.71 is a 5.85 upside from the most recent price.
Should You Buy Qualcomm Stock in 2024?
Qualcomm’s impressive results in the second quarter and ongoing diversification efforts make a compelling case for buying the stock. Its ongoing AI and the automotive sector efforts position it for long-term revenue growth. Consequently, analysts’ moderate buy rating accurately represents the stock’s trajectory in the next few years.
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