Qualcomm is entering the AI chip race. It could keep AMD and Nvidia on their toes.
Though time will tell how many dollars Wall Street adds to its QCOM stock price targets, I do think that the latest upside surge in the name is more than buyable, even if it's too early in the game to tell if Qualcomm's offering will be able to take share away from the likes of Nvidia or AMD.
At less than 20 times trailing price-to-earnings (P/E), I still don't view Qualcomm as appropriately valued, given the potential upside if it can produce an AI chip that keeps Nvidia on its toes. Even if Qualcomm's AI200 series of chips can't challenge Nvidia head-on, they could still act as a massive needle mover for the shares.
As we found out with AMD, another stock that I've praised in recent months as a great catch-up play, you don't need to be in that top spot to profit from the surge in AI chip demand.
Qualcomm's latest AI chip spike may be just the startIn any case, Qualcomm's stock breakout is a long time coming, and with shares still off by just over 17% from all-time highs, I do think new highs could be in the cards as more investors move from the frothier AI stocks towards those that are still attractively valued.
Whenever you have an AI chip maker like QCOM trading at 13.9 times forward P/E, I think it's hard to make a case that AI stocks are in a bubble. Either way, I'm a massive fan of Qualcomm's move into AI chips and think it'll be successful as it looks to pull the curtain on the AI200 chip in 2026 and the AI250 in 2027.
Though I think the 11% single-day surge is justified, I view the move as not all too surprising.
If Qualcomm is to participate (to a greater extent) in this AI boom, it needs to roll up its sleeves and get spending on efforts like the AI200 series. Combined with the 6G revolution, which could begin to really kick in before 2030, and I'm inclined to view Qualcomm as one of the next big forces in AI to enjoy considerable multiple expansion because with a forward P/E in the teens, I think the name is being significantly undervalued by the market.
The bottom lineAfter Monday's move, I think an upward course correction has already begun. And it will be interesting to see how steep Qualcomm's rally will be, as investors and analysts mark their calendars next year for the AI250, which may very well make good on the "generational leap in efficiency" the firm is promising.
Given the power-efficient semi design talent that Qualcomm brings to the table, I think it's a mistake to discount the company's move into AI-driven chips. It's a pricey and ambitious effort, to say the least, but one that's necessary if the firm is to reinvent itself and attract a higher multiple on its shares again.
Arguably, efficiency gains are where the puck may be headed next in the world of AI chips, as the next phase of the boom plays out. And in that regard, I view Qualcomm as very well-positioned. So, whether you're looking for an AI catch-up trade or a name that defies the "AI bubble" headlines, QCOM stock looks too good to pass up.
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