Qualcomm (NASDAQ:QCOM) stock is a buy in the semiconductor industry. This is especially true with the company’s focus on AI, automotive, and mobile applications as potential growth drivers. These strategic investments that Qualcomm has made in these areas are expected to yield high returns in the future. This is true even in light of recent market fluctuations and record-high volatility.

The rising volatility in the market has created many openings in the market for short-term traders and investors to take advantage of mispricing opportunities. On July 26, I predicted that the Chicago Board Options Exchange’s CBOE Volatility Index (VIX), or the greed and fear index, could enter “one of the most volatile periods we’ve seen over the last four years, and conceivably over the past decade.” Two weeks after that article was published, the VIX rose 76%. Much of that timing was luck. However, the rationale behind my thesis played out as expected due to the turmoil in the markets.

My previous article recommended that investors hold their positions. Now, I am taking a more bullish stance. Volatility is mean-reverting, so it tends to average out over time. If it’s less volatile that means there is less fear and increased risk appetite. In the case of Qualcomm stock, which is down 9.33% over the past five days, I see realistic upside potential for correction.

In order to explore all angles, I’ll touch on the bear, bull, and hold thesis for Qualcomm stock. I will also flesh out my personal thesis for whether or not you should buy this stock.

Acquisitions and Earnings Potential

One of the key reasons I’m bullish on Qualcomm stock comes from its presence in the automotive market. It is also where investors should focus their attention towards. AI is the obvious play for QCOM. Its most efficacious application is in the automotive segment, of which it has supplied technology for over 20 years.

The company is rolling out a number of new products as part of its Snapdragon Digital Chassis portfolio. This will enable features including LTE, 5G, V2X, Wi-Fi, Bluetooth, satellite communications, and precise positioning, among others. This will be used in “smart cars.” Also, it is slowly becoming synonymous with the high-end luxury segment.

The company is also developing technology for exclusive use in self-driving vehicles as well through its Snapdragon Ride platform. This platform offers automated driving system-on-chips (SoCs).

The bottom line is that analysts are pricing in a huge increase in the company’s earnings per share. This can at least partially be attributed to this key operating segment. Specifically, earnings are predicted to grow 57.35% to $10.10 by the end of the year.

AI Skepticism

If you are feeling sick about hearing about AI then you are not alone. When everything seemingly has AI built into it, it can no longer give individual products an advantage. This is because it has now become an expected feature in modern products.

My view is that the capabilities of AI are the best we’ll ever see for a considerable amount of time. At first, small steps look outstanding. This is because we are working from the lowest baseline. However, it didn’t take long for each improvement to become progressively less impressive. As a report by Goldman Sachs (NYSE:GS) argued recently ,“[AI] technology isn’t designed to solve the complex problems that would justify the costs”. This may make sense given that the amount invested in AI has already breached 1 trillion.

Qualcomm stock is also integrating expensive AI tech into its chips as part of its cockpit and automated driving systems for its vehicles. It will also extend to things like smartphones, Internet of Things, Cloud Computing, and more. 

AI is undoubtedly a tailwind for virtually all companies, but its financial impact remains speculative. Moreso, there are theories that AI will get dumber over time as it consumes its own training data. The persistent (and worsening) hallucination issues with ChatGPT 4o, Claude, and all other large language models (LLMS) could be early signals that we’ve misjudged their impact and capabilities.

Valuation

You shouldn’t believe that a firm’s P/E ratio being high relative to its peers is a sign that it’s overvalued. The P/E (and not just the forward P/E) is ultimately a projection of how confident investors are in the company’s future earnings potential. A company with a lower P/E means that its earnings are expected to be lower in the future than a company with a higher P/E and vice-versa. However, in the case of Qualcomm stock, analysts argue that its future earnings expectations are setting it up for an earnings miss in the short term.

Qualcomm has increased its EPS by more than 57.35% twice in recent history, twice during the pandemic when tech went on a once-in-a-lifetime bull run. Furthermore, the question is whether it can sustain that earnings growth. Right now, the consensus among analysts is that its EPS will dip into the low double digits after 2025, which then draws a question mark around whether its current valuation makes sense.

Still, in the short term, its stock price is expected to rise 29.77% over the next 12 months. The firm’s implied volatility per the options market also supports that it will make a major move in the short term. QCOM may be a “buy” in the short and medium-term horizons. However, investors must treat its earnings outlook with modest trepidation.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to theInvestorPlace.com Publishing Guidelines.