Qualcomm's AI Potential: A Tech Stock to Watch

Qualcomm's (NASDAQ: QCOM) potential in the AI space is becoming increasingly evident, despite its recent challenges. While the company is known for its smartphone chipsets, its AI capabilities extend far beyond this domain, positioning it as a tech stock to watch in the evolving AI landscape.

AI has long been a significant interest for investors, with breakthroughs like generative AI driving considerable returns for companies such as Nvidia and Palantir Technologies. The AI boom continues to inspire gains in other tech stocks, and Qualcomm may just be at the beginning of its AI-driven growth.

Qualcomm's Snapdragon 8 Gen 3, released in the fall of 2023, has enabled users to incorporate AI into their smartphones. However, the revenue growth from handset sales has not been as robust as expected. The company also faces the challenge of potentially losing one of its largest customers, Apple, which is reportedly ready to replace Qualcomm's chips with its own designs.

Despite these challenges, Qualcomm has been preparing for a future less reliant on smartphones. The company's Internet of Things (IoT) segment has developed end-to-end IoT solutions for applications such as smart homes and industrial automation. Additionally, its advancements in communications and AI could make it a leader in self-driving technology through its automotive segment.

In the first six months of fiscal 2025 (ended March 30), revenue for Qualcomm's IoT and automotive segments increased at annual rates of 31% and 60%, respectively, significantly outpacing the 12% growth in the handset segment over the same period. This diversification is a clear indication of Qualcomm's strategic foresight.

Qualcomm has also ventured into the PC chip market, competing with AMD and Intel. In the data center market, the company has partnered with Nvidia to develop custom chips that can support AI workloads within data centers. These recent advancements are positively impacting Qualcomm's financial performance.

In the first two quarters of fiscal 2025, Qualcomm's revenue of nearly $23 billion increased by 17% compared to the same period in fiscal 2024. This growth is a significant improvement from the 3% annual increase seen in the same period last year. Despite these financial improvements, Qualcomm's stock has not yet reflected the full potential of its AI advancements.

Qualcomm's strategic diversification and AI capabilities position it as a tech stock with significant growth potential. As the AI market continues to expand, Qualcomm's broader offerings could drive substantial returns for investors.