Here's 1 Other Semiconductor Stock to Buy Instead

Semiconductors are a core pillar in the emerging artificial intelligence (AI) revolution. Yet the chip space is largely dominated by just two players: Nvidia and Advanced Micro Devices.

However, other companies are beginning to make inroads in the industry as well. Qualcomm (NASDAQ: QCOM) has spent the last several months instituting new cost reduction policies while simultaneously combatting its larger cohorts in the chip space.

The company just reported earnings for its second fiscal quarter — ended March 24. While Qualcomm is still in turnaround mode, the earnings report was encouraging and could shed light on where the company is headed.

Let’s dig into Qualcomm’s business and assess if the stock looks like a good buy right now.

Qualcomm has had a bumpy ride

Over the last year, demand for semiconductor chips has risen sharply.

Nvidia has been the biggest beneficiary of this trend, as the company witnessed over 120% revenue growth in 2023. What’s even more impressive is Nvidia’s compute and networking segment grew by more than 200% last year. The upswings are largely driven by unprecedented demand for Nvidia’s A100 and H100 graphics processing units (GPUs).

Unfortunately, this same growth narrative doesn’t apply to Qualcomm. The chart below illustrates some of the financial and operating trends for Qualcomm during 2023.

Clearly, the company’s revenue and operating margin profiles have taken a step back compared to prior periods.

QCOM Revenue (Annual) Chart

Last year, sales from Qualcomm’s handsets and Internet of Things (IoT) businesses declined 22% and 19%, respectively. Management attributed these declines to a challenging macroeconomic environment.

However, since the company’s fiscal year-end in September, Qualcomm has quietly been turning its operation around. Let’s unpack the last couple of quarters and assess the moves the company is making.

Image source: Getty Images.