We recently compiled a list of the 10 Best Technology Stocks to Buy for Long Term. In this article, we are going to take a look at where QUALCOMM Incorporated (NASDAQ:QCOM) stands against the other technology stocks.
An Analysis of the Technology Industry
The technology industry is one of the key drivers of the global economy. According to MGI research, the global technology industry was valued at $8.51 trillion in 2022 and is forecasted to grow at a compound annual rate of 7.75% to reach $11.47 trillion by 2026. In the United States alone the information technology industry drives more than one-third of the national economy.
One of the latest trends in the tech industry has been the increasing investments in artificial intelligence by both tech giants and start-up companies. According to a July 3 report by Reuters, the US venture capital funding surged to $55.6 billion during the second quarter of 2024. The funding surged more than 47% on a quarterly basis and was mainly driven by significant investments in artificial intelligence companies including $6 billion raised by Elon Musk’s xAI.
However, over the past few months, the technology sector has seen a major sell-off due to what analysts call an “AI bubble”. The sell-off initiated with investors raising concerns over return on investment regarding the premium they have been paying as capital expenditure on artificial intelligence. On August 5, CNBC reported that the “Magnificent Seven” US tech companies lost a combined $1 trillion market value at the start of the trading day. As a result, NASDAQ was down 3%, marking the index’s steepest three-week slide in two years.
We recently covered the AI tech bubble in detail in 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst. Here’s a glimpse of the article:
“In the past few weeks, a major selloff in the technology sector, mostly over concerns about return on investments amid ballooning capital expenditures on artificial intelligence (AI), has hit the stock market, sending valuations crashing and igniting fears of an AI bubble at the marketplace that might be about to burst. However, Stacy Rasgon, who has covered semiconductor stocks, one of the most prominent sectors in the AI world, for over fifteen years, has advised investors to stay the course, terming fears of a bubble as overblown. Rasgon claims that even though chances of an air pocket, used to refer to stock plunges, are 100%, he is confident the time for them is not now. He pointed to the very real and massive AI data center build as an example, predicting it would go on for a few years, helping push AI stocks higher.”
Michael Landsberg, Landsberg Bennett Private Wealth CIO appeared on a CNBC interview to talk about the AI bubble. He believes that the AI bubble hasn’t popped yet and what we saw recently was a reset of the market, where the market resets out-of-sync factors, and does not mean that the analysts are not positive about AI. He further added that a lot of AI companies have had a great past six months and are growing their earnings. He believes that ultimately earnings drive any stock and as far as AI stocks are concerned their earnings are growing and will continue to grow, thereby increasing the price.
Moreover, Steve Eisman, Neuberger Berman Senior Portfolio Manager appeared on another CNBC interview termed the recent events as a “Psychological Rotation”. He mentioned that this was not a fundamental rotation, which could have been troublesome, rather it is a psychological rotation that will not hold for long. He further mentioned that Artificial intelligence is here to stay for years and he still sees massive growth opportunities for companies investing in AI.
Our Methodology
To compile the list of 10 best technology stocks to buy for the long term we used the Finviz and Yahoo Finance stock screeners. We searched for technology stocks and sorted them based on their market capitalization. From these stocks, we selected technology stocks that have been in business for 20 years or more and are expected to stay in business for several decades. Once we had the consolidated list, we ranked the stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician testing the latest 5G device, demonstrating the company’s commitment to innovation.
QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 100
QUALCOMM Incorporated (NASDAQ:QCOM) is another best technology stock to buy, with a robust history of growth. During the past 5 years, the company has grown its revenue by 8.16%, its net income by 21%, and its levered free cash flow by 6%.
It is a leading international corporation that specializes in developing foundational technologies for various wireless applications. The company generates record revenues from mainly three industries, Handsets (the largest market for QCOM), Automotive, and the Internet of Things.
QUALCOMM Incorporated (NASDAQ:QCOM) delivered strong financial results for Fiscal Q3 2024, with revenue and earnings beating analysts’ expectations. Revenue for the third quarter improved 11.24% year-over-year to reach $9.4 billion, ahead of market consensus by a huge margin of $173.5 million. Whereas, the earnings per share of the company were $2.33 beating expectations by $0.08.
So, how did the company achieve record revenues while its license to export to Huawei was revoked earlier than expected?
The Handsets segment is one of the major contributors to revenue growth for the company. The Huawei license headwind should have disrupted revenue growth for the company, however, QUALCOMM Incorporated (NASDAQ:QCOM) still increased its revenue guidance to $9.5 billion to $10.3 billion for the upcoming quarter.
The confidence of management originates from its exceptional performance in the automotive segment, which grew 87% year-over-year to reach $811 million during the quarter. QUALCOMM Incorporated (NASDAQ:QCOM) supplies digital technologies for the automotive industry, with applications in both combustion engines and electric vehicles, thereby substantially increasing the automotive market size for the company.
Moreover, the fiscal Q3 was not the only successful quarter for this segment, the company has been posting record automotive revenues consecutively for the past 4 quarters. Management expects the streak to continue throughout the year as it has secured at least 10 new design wins with global automakers.
QCOM is also cheap at current levels. It is trading at 17 times its forward earnings, a 27% discount to its sector. Moreover, its earnings are also expected to grow by 7.2% during the year to reach $9.04.
QCOM was held by 100 hedge funds in Q2 2024, with total stakes worth $8.83 billion. Matrix Capital Management is the top shareholder of the company, with a position worth $1.99 billion.
O’keefe Stevens Advisory stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its Q2 2024 investor letter:
“During the quarter, the A.I. rally broadened beyond the obvious players of Nvidia, AMD, and hyperscalers. QUALCOMM Incorporated (NASDAQ:QCOM), a long-standing investment, is gaining recognition for integrating artificial intelligence into mobile phones. Qualcomm’s A.I. on-device capabilities enable real-time language translation, improved voice recognition, and sophisticated imaging techniques as A.I. becomes more integral to mobile experiences. Qualcomm benefits by leading the market in providing robust, efficient, and versatile A.I. solutions. A.I. could be the first technology advancement in several years to accelerate the smartphone replacement cycle as users desire these advanced capabilities.”
Overall QCOM ranks 9th on our list of the best technology stocks to buy for long term. While we acknowledge the potential of QCOM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than QCOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.