Qualcomm (NASDAQ:QCOM) is steeped in the artificial intelligence trend, but it’s richly valued now as the sentiment surrounding AI chipmakers runs red-hot. If you have any available profits on Qualcomm stock, I encourage you to book them now.
Qualcomm isn’t a bad company by any means, but the Qualcomm share price recently visited $200 and I’d much rather buy the stock at $150 or less. Otherwise, you might end up buying at the short-term top and, as the old saying goes, price chasers get punished.
Qualcomm-Microsoft Deal: Looking Beneath the ‘Surface’
Pardon the pun, but investors must always look beneath the “surface” when assessing any deal between big-name businesses. In this case, I’m referring to Microsoft’s (NASDAQ:MSFT) recent announcement of a Surface Laptop and a Surface Pro tablet using Qualcomm AI chips.
InvestorPlace contributor Terel Miles expects that this deal “will inevitably drive significant demand for” Qualcomm’s Snapdragon AI-enabled processor platform. I agree 100%, but eager investors shouldn’t get ahead of themselves.
You may have noticed that practically everybody and his uncle is heralding the coming revival of the personal computer market. This is predicated on the expectation that people will line up to buy AI-enhanced laptop and desktop computers.
Heaven only knows whether this optimistic scenario will actually pan out. Short-term stock traders seem to believe so, since they already pushed Qualcomm stock to all-time highs this year. This may just be a setup of disappointment, though.
Qualcomm Rides on Nvidia’s Coattails
In case you didn’t get the memo, it’s Nvidia’s (NASDAQ:NVDA) world and we’re all just living in it. Thus, after Nvidia released another round of blockbuster quarterly results not long ago, seemingly every stock with an AI-chip connection rode higher on Nvidia stock’s coattails.
To invoke an old principle, Nvidia’s rising tide lifted Qualcomm’s boat. The Wall Street Journal reported on the rally as Nvidia’s outstanding quarterly results prompted a swift run-up in AI-chip stocks.
So, now Qualcomm has a trailing 12-month price-to-sales ratio of around 6x, which is double the sector median P/S ratio. In other words, Qualcomm shares appear to be richly valued, and Nvidia may deserve some of the credit/blame for this.
It’s frustrating, no doubt, for value-focused investors who like Qualcomm’s future growth prospects. Sometimes, the best move is to make no move at all, which can actually be the hardest thing to do.
Qualcomm Stock: Take Your Chips off the Table
If you rode Qualcomm stock all the way to $200, congratulations. You benefited from the Nvidia earnings bump, as well as from the Microsoft-Qualcomm deal.
Now, it looks like a lot of optimism has already been baked into the Qualcomm share price. Just refer to Qualcomm’s trailing P/S ratio, and you’ll surely agree that the company is fully valued.
Therefore, taking profits is a wise move. Moreover, keep some cash handy so you can invest in Qualcomm stock again at $150 or less.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
