This Artificial Intelligence (AI) Powerhouse Could Be Just Getting Started

Artificial intelligence (AI) has long drawn the interest of investors. AI has been used in various forms going back to the turn of the century for companies like Google parent Alphabet, and others. The generative AI boom is a much more recent breakthrough, and it is driving considerable investment returns for companies like Nvidia and Palantir Technologies.

The AI-based breakthroughs continue, and that is inspiring gains in other AI-driven tech stocks. Such gains may have just begun for one particular tech stock.

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A stock positioned to benefit from AI

The stock that is well-positioned to start benefiting from the latest AI changes is Qualcomm (NASDAQ: QCOM).

Admittedly, Qualcomm does not look much like a winner in AI. It released the Snapdragon 8 Gen 3 in the fall of 2023, empowering users to incorporate AI into their smartphones. Although revenue growth in handset sales eventually returned to double-digit levels, AI has failed to inspire the level of increased sales that Qualcomm experienced when users wanted to upgrade to 5G.

Moreover, after years of failed attempts, Apple appears finally ready to replace Qualcomm's chips in the iPhone with chips of its own design. Assuming Apple does not reverse course, Qualcomm is set to lose one of its largest customers.

However, it may hearten investors to know that Qualcomm has long prepared for the day when it will depend less on smartphones.

Its Internet-of-Things (IoT) segment has applied its communications abilities to develop end-to-end IoT solutions for applications such as smart homes and industrial automation. Additionally, its communications and AI advances could make it a leader in self-driving through its automotive segment. In the first six months of fiscal 2025 (ended March 30), revenue for the 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.

Furthermore, Qualcomm has developed PC chips, making it a competitor to AMD and Intel. In the data center market, it has also partnered with Nvidia to develop custom chips that can support AI workloads within data centers.

Effects on financials

These recent advancements appear to be helping Qualcomm's top and bottom lines more than its stock. In the first two quarters of fiscal 2025, revenue of nearly $23 billion increased by 17% compared with the same period in fiscal 2024. During the same period last year, revenue had risen by only 3% annually.

In the first six months of the year, Qualcomm kept a lid on operating expense growth. Still, with lower investment income and rising income tax expenses, its $6 billion in net income grew by 18% yearly.

Nonetheless, such improvements have not swayed investors. Over the last 12 months, Qualcomm stock dropped by almost 20%, though it is up 27% from the lows it reached in April.

Additionally, the stock sells at a 16 P/E ratio. Although that is not much lower than the average P/E ratio of 20 over the last five years, the earnings multiple suggests a lack of investor optimism about Qualcomm stock. And yet, this reasonable valuation could inspire a bull market in Qualcomm stock. Assuming its non-handset segments continue to grow at a rapid rate, it could start Qualcomm stock on a long-term growth trend.

The growth prospects of Qualcomm stock

Considering the state of Qualcomm's business and stock, it has real potential to begin a long-term growth trend. Admittedly, a lackluster AI growth cycle and the likelihood of losing Apple as a customer have soured some investors on Qualcomm. However, the company has returned to revenue and earnings growth, and its burgeoning IoT and automotive segments deserve significant credit for this surge.

Ultimately, such improvements should not lead to a falling stock price and a rock-bottom valuation. Once Qualcomm's role in AI becomes clearer, such conditions could inspire the beginning of a long-term uptrend in Qualcomm stock.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Will Healy has positions in Advanced Micro Devices, Intel, and Qualcomm. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Intel, Nvidia, Palantir Technologies, and Qualcomm. The Motley Fool recommends the following options: short August 2025 $24 calls on Intel. The Motley Fool has a disclosure policy.