SoftBank's Masayoshi Son Expresses Belief in Nvidia's Undervalued Stock. Another Artificial Intelligence (AI) Shares He Believes Offer Superior Value for Money.
SoftBank's Masayoshi Son Expresses Belief in Nvidia's Undervalued Stock. Another Artificial Intelligence (AI) Shares He Believes Offer Superior Value for Money.
In my perspective, the essential building block of AI's robust foundation is semiconductors. From storage and memory, quantum computing, machine learning, and numerous other AI applications, semiconductors act as the foundation for the broader AI theory.
If you've been keeping an eye on chipmakers recently, you won't be shocked to find that Nvidia (NVDA dropping by 2.25%) has emerged as the key player in the AI sector. Despite its shares increasing by 752% in just the past two years, renowned investor Masayoshi Son of SoftBank declared that Nvidia stock is still underpriced.
Son's reasoning: the market for generative AI is anticipated to see significant growth in the coming years. Not only does this create a positive breeze for Nvidia, but its leading-edge lineup of graphics processing units (GPUs) puts it ahead of the competition. Given this advantage, Nvidia might even capture a significant portion of the projected market share. If this happens, Nvidia's stock seems like a no-brainer.
While Son might be right, I'm not letting Nvidia's dominance overshadow other promising chip market opportunities. Below, I explain why I believe Qualcomm (QCOM rising by 0.18%) is a viable alternative to investing in Nvidia, and one that I think is a better option at the moment.
Qualcomm is steadily making a name for itself in AI
Although Qualcomm is a semiconductor company, its core business is distinct from Nvidia's. While Nvidia focuses on creating GPUs for AI development, Qualcomm's Snapdragon architecture is more geared towards powering mobile phones or even the Internet of Things (IoT) devices.
Despite registering revenue growth of only 9% during its fiscal year (ending Sept. 29), Qualcomm's financial picture is slowly improving. This growth might seem modest, but keep in mind that Qualcomm has been battling a turnaround for quite some time - evident in cost-saving measures and recovering its core handset (phone) business.
Qualcomm's efforts are showing results. While revenue growth was minimal during the first half of fiscal 2024, Qualcomm showed remarkable improvement in the second half, with sales rising by 11% in the third quarter and 19% in the fourth quarter.
Moreover, Qualcomm's net income and earnings per share (EPS) both escalated by 40% in fiscal 2024. I'd gladly accept slow revenue growth in exchange for this level of profit growth. And what's even more enticing is Qualcomm's plans for using some of its newfound profits.
15 billion reasons to fancy Qualcomm stock right now
As part of its recent earnings report, Qualcomm declared that its board of directors approved a $15 billion stock buyback program. I like this move as a strategic deployment of the company's excess cash flow to reward its shareholders.
Is Qualcomm stock a buy right now?
In the graph below, I've compared Qualcomm to a set of other semiconductor stocks using the forward price-to-earnings (P/E) multiple. I find the forward P/E as a useful benchmark because it can help indicate how a company's outlook is perceived relative to its peers. Qualcomm's forward P/E is just 14.3, suggesting that investors are discarding Qualcomm's growth potential compared to many of its peers.
Given the valuation trends depicted in the graph, Qualcomm could appear as an undervalued opportunity in the broader semiconductor stock market. When combined with the $15 billion share repurchase programme, it seems Qualcomm's management perceives the stock as undervalued as well.
While Son's assessment of Nvidia's potential may hold water, I believe Qualcomm stock presents a more appealing opportunity at the moment due to its price disparity relative to peers. Qualcomm appears to be trading at a discount and I believe the stock is a solid choice now for investors with a long-term focus.
After discussing the growth prospects of Nvidia in the AI sector, it's worth considering investing in Qualcomm as an alternative. Despite registering moderate revenue growth, Qualcomm's financial situation is improving, and its net income and EPS have both increased by 40%. As a strategic move, Qualcomm's board of directors has also approved a $15 billion stock buyback program, making Qualcomm stock an attractive proposition for investors looking for undervalued opportunities in the broader semiconductor stock market.