Earlier this summer, it seemed as if the market was starting to appreciate possible artificial intelligence catalysts with Qualcomm (NASDAQ:QCOM) stock.
From late May through early August, QCOM stock experienced a rebound, likely because of this factor.
More recently, though, shares have given back most of these gains. Sure, you can point to the fact that a cooldown in “AI mania” is the reason bullishness among investors for this mobile chip maker has waned.
However, while this may be a reason behind this sentiment shift, it is not the sole reason.As seen in the market’s reaction to the company’s latest results and guidance, a key issue with Qualcomm is top of mind once again.
With this, fighting the trend is the last thing you should do. In the near-term, there’s a strong chance the stock re-tests its 52-week low, or worse, hits new lows.
Why QCOM Stock has Reversed Course
Tech stocks with high exposure to the generative AI mega-trend hit all-time highs during July, but more recently have more-or-less pulled back in price. In some situations, these pullbacks could be a buying opportunity for long-term investors.
However, is that the case with QCOM stock? The answer is a resounding “no,” for two reasons.
First, unlike some of the other high-profile tech companies already profiting on this trend (as seen in their latest fiscal results), Qualcomm’s efforts in this area much remain in “work-in-progress mode.”
The company has made some AI progress. Qualcomm is even collaborating/partnering with major AI players on several endeavors. However, as I argued last month, it’s still going to be a while before this progress produces actual financial results.
Second, while many of the tech giants are already seeing their non-AI businesses recover, Qualcomm’s core non-AI business (chips for mobile phones) remains in a slowdown.
If that’s not bad enough, as Barron’s reported in its coverage of the company’s Aug. 2 earnings release, management has conceded that an imminent recovery is likely not in the cards.
Investor Confidence Could Keep Dropping
For the preceding fiscal quarter (ended June 25), Qualcomm reported results that were solid when compared to sell-side forecasts, but were horrendous when compared to prior year figures.
Revenue declined by 23% compared to the prior year’s quarter, falling from $10.9 billion to $8.4 billion. Earnings per share dropped by an even larger amount (37%), falling from $2.96 per share, to $1.87 per share.
However, it was the latest updates to guidance, not these poor results, that elicited a negative response from QCOM stock investors.
With mobile chip demand still weak, Qualcomm expects revenue this quarter to come in between $8.1 billion and $8.9 billion. The sell-side was expecting revenue this quarter of $8.7 billion heading into earnings.
Given the continued challenges in the mobile chip space, it’s now more questionable whether results will begin to really bounce back (or bounce back at all) in the quarters ahead.
Yes, the company is making other efforts to boost the bottom-line, like its cost-reduction plans. Still, this alone likely won’t enable Qualcomm to experience an earnings recovery in the near-future. With this, investor confidence (while already low) could keep dropping.
Stay Away, as New Lows May Loom
Although QCOM stock already trades at what some consider a low valuation (13.6 times forward earnings), shares could still fall down to an even lower multiple.
Even as shares have dropped by double-digits over the past few weeks, they’ve yet to re-hit their 52-week lows ($101.47 per share).
If more downbeat news regarding smartphone/mobile chip demand comes out, falling back to this price level is well within the realm of possibility.
The same goes for Qualcomm continuing to hit new 52-week lows. If further developments indicate earnings will not rebound much (or at all) in the coming fiscal year (ending September 2024), there’s the risk of another de-rating.
Put simply, there’s still no reason to waste your time (or risk your capital) with a QCOM stock position, especially as there are stronger AI chip plays out there.
QCOM stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
