Qualcomm Is Seeing Strong Smartphone Demand, but Is the Stock a Buy?

Qualcomm (NASDAQ: QCOM) shares fell despite the semiconductor company reporting robust fiscal first-quarter results and issuing upbeat guidance. The stock is up just over 15% over the past year as of this writing, but off about 28% from the high it hit in June.

Let's dig into Qualcomm's results to see if this is a good opportunity to buy the stock on the dip.

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Record revenue

For the third quarter in a row, Qualcomm posted double-digit revenue growth, setting a new quarterly record in the process. For its fiscal Q1 ended Dec. 29, revenue jumped 17% to $11.67 billion, which easily topped the $10.93 billion consensus as compiled by LSEG.

Revenue for its chip segment (QCT) climbed 20% to $10.1 billion. Handset revenue, which includes smartphones, rose 13% to $7.6 billion, while automotive revenue soared 61% to $961 million. Internet of Things (IoT) revenue surged 36% to $1.5 billion.

The company credited its solid handset revenue performance to higher volumes from premium Android devices, such as the Samsung Galaxy S25 devices, which use its Snapdragon 8 Elite platform. It also said that its sales to Chinese customers were strong, as the premium part of the market grows in the country.

In the automotive chip segment, the company said automakers are using its "high-performance, low-power computing, and connectivity chips to bring next-generation experiences to consumers." It also said that it is teaming up with a number of automakers on artificial intelligence (AI)-powered, in-cabin, and advanced driver assistance systems. Meanwhile, in IoT, it said it is seeing strength across the consumer, networking, and industrial verticals.

Revenue for its high-margin licensing segment (QTL), meanwhile, rose 5% to $1.5 billion. It said it extended key agreements with major original equipment manufacturers (OEMs) during the past year and that it is set to soon renew two new long-term license agreements with additional big OEMs.

Data source: Qualcomm.

Adjusted earnings per share (EPS) jumped 24% to $3.41, topping analyst consensus expectations of $2.96.

Qualcomm guided for fiscal Q2 revenue between $10.3 billion and $11.2 billion, equating to growth of 10% to 19%. It is looking for chip revenue between $8.9 billion and $9.5 billion and licensing revenue between $1.25 billion and $1.45 billion. It is forecasting adjusted EPS in the $2.70 to $2.90 range. Analysts were looking for adjusted EPS of $2.69 and revenue of $10.3 billion, so the midpoint of its guidance was solidly ahead of those expectations.

Qualcomm is looking for handset revenue to rise by about 10% in the quarter, helped by increased shipments for Samsung Galaxy S25 smartphones. Meanwhile, it is looking for auto revenue to grow by about 50% and IoT revenue to increase by about 15%. Licensing revenue is expected to slip sequentially due to seasonality.

Image source: Getty Images.

Is the stock a buy?

Qualcomm turned in a great quarter and offered an outlook that was well ahead of analyst expectations, but the stock nonetheless fell. Its high-margin licensing revenue was a tad below expectations both for the just-reported quarter and Q2 guidance, which could be part of the reason. However, that is some pretty heavy nitpicking for what otherwise was a blowout quarter.

Qualcomm is still very heavily tied to smartphones with both its chips and licensing businesses. This is a more mature market at this point and an AI-fueled upgrade cycle has not really taken hold as some expected. However, the company is doing a good job of trying to diversify away from smartphones and is looking to generate about $22 billion in non-handset revenue by 2029. That would more than double the non-handset revenue run rate that it saw in fiscal Q1.

Qualcomm trades at a forward price-to-earnings (P/E) ratio of 15 times based on current fiscal year analyst estimates and a price/earnings-to-growth (PEG) ratio of 0.6. Stocks with PEG ratios under 1 are generally viewed as undervalued, while growth stocks will often trade at PEG ratios well above 1.

QCOM PE Ratio (Forward) data by YCharts

The sell-off in Qualcomm shares looks like an overreaction in my view. It was a strong quarter with solid guidance and the stock is cheap. The company still needs to diversify away from a mature smartphone market, but thus far it's doing a nice job growing within the automobile and IoT segments.

As such, I would be a buyer of the stock on the dip.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Qualcomm. The Motley Fool has a disclosure policy.