Artificial intelligence (AI) is having a positive impact on multiple industries across the globe, and the smartphone market is one of them. The advent of generative AI has started giving smartphone sales a nice lift following a difficult couple of years when shipments fell.
The smartphone market contracted 11% in 2022, which was followed by a 3.2% decline last year. This explains why shares of Qorvo (NASDAQ: QRVO) , a noted supplier of smartphone chips to Apple , remained nearly flat for the past couple of years. However, Qorvo's latest results suggest that its fortunes on the stock market could start changing for the better later this year.
Let's take a closer look at Qorvo's recent quarterly results and find out why buying this semiconductor stock right now could turn out to be a smart move.
The AI smartphone market is set to open a new growth opportunity for Qorvo
Qorvo released fiscal 2025 first-quarter results (for the three months ended June 29) on July 30. The company's revenue jumped 36% year over year to $887 million, while non- GAAP earnings shot up to $0.87 per share from $0.34 per share in the same period last year. Analysts would have settled for $0.71 per share in earnings on revenue of $852 million.
Investors should note that Apple is Qorvo's largest customer, accounting for 46% of its business last year, while Samsung was responsible for 12% of Oorvo's revenue. While one of them is already dominating the generative AI-enabled smartphone space, the other one is expected to jump into this market very soon.
More specifically, Samsung's Galaxy S24 devices held the first three spots in the list of best-selling generative AI smartphones in the first quarter of 2024 with a market share of just over 58%. Qorvo management pointed out on the company's latest earnings conference call that it has "got excellent dollar content in that and they had a pretty nice ramp."
This probably explains why Qorvo delivered robust year-over-year growth in the previous quarter. And now, Apple could give Qorvo a shot in the arm in the closing stages of 2024. That's because Apple's upcoming iPhone models, which could be released next month, are expected to be AI-capable. The tech giant recently revealed that it has developed a set of AI-focused features, known as Apple Intelligence, and they are expected to find their way into the new generation of iPhones.
Apple's launch of an AI-focused iPad in May this year led to a healthy year-over-year increase of almost 24% in its iPad revenue last quarter. It won't be surprising to see something similar happening with the iPhone line as well, especially considering that generative AI smartphone shipments could grow at a stunning annual rate of 78% through 2028.
Apple's move into the generative AI smartphone market with its new iPhone lineup could unlock a new growth opportunity for the company and revive interest in a product that turned in a flat sales performance last quarter. Bloomberg, for instance, is expecting AI to lift iPhone sales by 10% in the second half of 2024 from the previous year.
This bodes well for Qorvo as it seems to be on track to gain more content in Apple's products. On the recent earnings conference call, CEO Robert Bruggeworth remarked:
Turning to mobile, which is primarily smartphones and tablets, our largest opportunity remains at our largest customer. We are investing in multiple multiyear programs to increase our content and continue to grow revenue with this customer. R&D investments for future programs include products we currently supply this customer as well as new products we are not currently supplying.
This probably explains why analysts have increased their revenue expectations from Qorvo of late.
QRVO Revenue Estimates for Current Fiscal Year data by YCharts
The valuation makes the stock an enticing buy
Qorvo's improving top-line growth prospects are expected to filter down to its bottom line as well. This is evident from the following chart, which tells us that the company is expected to deliver healthy earnings growth over the next couple of fiscal years.
QRVO EPS Estimates for Current Fiscal Year data by YCharts
Qorvo is currently trading at just 16.4 times forward earnings, which is a nice discount to the Nasdaq-100 index's forward price-to-earnings multiple of 28 (using the index as a proxy for tech stocks). Assuming that it can indeed clock $10.17 per share in earnings after a couple of years and continues to trade at an attractive 16.4 times earnings at that time, its stock price could hit $167 in the long run.
That points toward a 54% jump from current levels. However, if the market decides to reward Qorvo with a higher earnings multiple on account of its AI-driven growth, this chip stock could deliver much healthier gains in the long run. That's why investors looking to add a cheaply valued AI stock to their portfolios would do well to take a closer look at Qorvo before it goes on a bull run.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Qorvo. The Motley Fool has a disclosure policy .
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