Anyone who's been stuck in a traffic jam for any length of time appreciates the value of the autonomous vehicle. Communications company leader Qualcomm (QCOM) is part of the drive to get us there.
That drive just got a little easier thanks to a new acquisition the company's making. Between its current line of smartphone-heavy business, and its new potential push into driverless cars, the end result is reason to be bullish on Qualcomm.
The last year for Qualcomm has featured a major upward thrust followed by a slow decline to more “normal” levels. From April 2021 to nearly November, the company held to a fairly tight range between $120 and $150 per share. November saw a substantial upward spike that proved unsustainable, and now the company is back around the $140 range once more.
The latest news might get Qualcomm back up past those spike levels. The company concluded its efforts to acquire Arriver, the self-driving vehicle arm of Veoneer. With Arriver in its fold, Qualcomm will be better able to compete against Intel's (INTC) Mobileye, currently regarded as a leader in the industry.
Wall Street's TakeTurning to Wall Street, Qualcomm has a Moderate Buy consensus rating. That's based on 12 Buys and five Holds assigned in the past three months. The average Qualcomm price target of $216.88 implies 55.7% upside potential.
Analyst price targets range from a low of $185 per share to a high of $250 per share.
Hedge Funds Losing Faith, but Dividends Inspire HopeRight now, hedge funds are significantly less interested in Qualcomm than they once were. The word from the TipRanks 13-F Tracker shows that, once more, hedge funds have reduced their stake in Qualcomm by about two million shares last quarter.
This is a return to form for hedge fund appraisal of Qualcomm; hedge funds had sold shares in Qualcomm from March 2020 straight on to June 2021. The first increase in hedge fund stakes took place in September 2021, but December 2021's departure saw a further reduction in stake.
However, for income investors, Qualcomm offers a welcome dividend. Qualcomm's dividend history shows just what dividend stock investors like to see: a dividend that regularly increases, and has been doing so over the last four years.
Even during 2020 and the worst of the COVID-19 restrictions, Qualcomm maintained, and even raised, its dividend.
Qualcomm Needs HelpGranted, the autonomous vehicle market has been rough for its entrants in the last few years. Even Elon Musk noted that actually getting an autonomous vehicle to market was a “hard problem.”
Given the sheer range and extent of the problems Tesla (TSLA) has seen in that vein, it's not surprising that actually getting such a car out is proving a taller order than most expect.
Worse yet for Qualcomm, there are signs that smartphones aren't quite as ubiquitous as they once were. The “dumbphone” is making something of a comeback. “Dumbphones” are basically the cell phones that most had back in the 2000 to around 2010 range.
Dumbphone sales were on track to hit one billion units in 2021, up from just 400 million in 2019. With smartphone sales on the decline, that could mean some trouble for Qualcomm sales going forward.
With that in mind, it's little surprise that Qualcomm would work to branch out. While the smartphone trade is unlikely to go away, potential weakness therein might prove a limiting factor. If Qualcomm can make good on self-driving cars, having a piece of that market would likely easily make up for smartphone losses.
While Qualcomm will likely have the same level of problem that Musk and Tesla had with self-driving vehicles, Qualcomm is advancing in this field. Qualcomm already had Snapdragon Ride, and Arriver was using Snapdragon Ride chips in its operations for the last several years.
By way of comparison, Nvidia (NVDA) has around $11 billion worth of sales pipeline operations for its DRIVE autonomous vehicle platform. Since Nvidia focuses mainly on premium cars, that leaves a whole range of budget models open for the Qualcomm platform.
Concluding ViewsQualcomm is branching out, and that's good news for investors. While the exact value of the self-driving car market may be limited until the potential sales pipelines become actual sales numbers, having a stake in a market that most will likely eagerly get in on is worth doing.
Better yet, the numbers look great for Qualcomm as well. With Qualcomm trading significantly under its lowest price targets, there's plenty of upside potential.
So Qualcomm has a solid position in a currently solid market -- smartphones -- but also a potentially sound position in a market that will be solid in the future in self-driving cars. That combination makes for a stock worth being bullish about.
Download the TipRanks mobile app now
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Read full Disclaimer & Disclosure
Shares of graphics hardware behemoth Nvidia (NVDA) really excited investors during its 2022 Investor Day presentation, shedding light on a plan to become the first $1 trillion semi company. If there's a company that can pull it off, it's Nvidia, with its brilliant leader Jensen Huang.
Undoubtedly, the total addressable market (TAM) for Nvidia is enormous. The innovative graphics-processing unit (GPU) maker has a front-row seat to video gaming, automotive tech, AI, and data center. Undoubtedly, a nice slice of each of the following markets could propel the company's market cap above the $1 trillion mark.
Still, it's Nvidia's Omniverse initiative that could be the key to unlocking next-level growth over the next decade once we move closer to the concept of the metaverse.
However, although Nvidia is on the cutting edge of next-generation technology, I am neutral on the stock. It's not that I wasn't excited about Nvidia's investor day or the $1 trillion opportunities at hand. It's the valuation of the stock going into a higher-rate environment.
The growth sell-off has been unforgiving thus far, and it may not be over. With a 22.7 times sales multiple, NVDA stock faces tremendous downside risk if the broader growth sell-off continues.
For that reason, I'm in no rush to chase Nvidia stock to trillion-dollar market cap territory. It will come in due time, but it will surely be a rocky road to the level, with the growth trade starting to show its wobbly legs.
Nvidia's Omniverse is the Answer to Meta's Metaverse
Add the exciting Nvidia Omniverse effort into the equation, and the trillion-dollar aspirations are not at all far-fetched. Thanks to a timely name change, Meta Platforms (FB) has propelled the concept of the metaverse to the forefront. In recent months, though, the growth trade has faded, and the metaverse ambitions of Mark Zuckerberg have started to seem more far-fetched.
With interest rates on the rise, profitability matters more than exciting stories. Still, there's no denying the long-term potential in the metaverse. Arguably, Nvidia is one of the better-equipped companies to construct the metaverse, not Meta. Unlike Meta, Nvidia has been in the gaming business for a very long time, with its top-of-the-line hardware that helps gamers run their favorite titles.
Not only does Nvidia's background give its Omniverse offering a greater chance at success, but it also lacks the questionable reputation that Facebook has. Further, early teases of Nvidia's Omniverse appear so much more exciting than the Meta presentation that revealed the firm's new name and focus.
Simply put, Nvidia is a graphics power king, and it's this hardware edge that could allow it to transition consumers into virtual worlds, which will likely be gaming-centric.
Nvidia Stock's Valuation Remains Excessive
Nvidia's Investor Day did not fail to impress this year. In many ways, its presentation is becoming more exciting than the likes of an Apple keynote (at least until the company has a chance to unveil the Apple Car or mixed-reality headset). The initial reaction was profoundly positive. Still, the stock has been shedding some of its recent gains.
At the end of the day, valuation matters. As one of the priciest semi stocks out there, Nvidia stock could be one of the growth stocks to face amplified damage as the rate-driven valuation reset continues.
Further, many industries Nvidia is pushing towards may not be tremendously profitable until many years down the road. Think nascent markets like AI and Omniverse. They're undoubtedly exciting, but it's unclear when next-generation AI and the metaverse will be ready for prime time.
If sizeable profits from such awe-inspiring initiatives are closer to 2030 than 2022, the stock will undoubtedly take a hit, especially now that the Fed has shown signs of increased hawkishness.
Wall Street's Take
Turning to Wall Street, NVDA stock comes in as a Strong Buy. Out of 26 analyst ratings, there are 21 Buy recommendations and five Hold recommendations.
The average Nvidia price target is $351.74, implying an upside of ~44%. Analyst price targets range from a low of $245 per share to a high of $410 per share. (See NVDA stock forecast on TipRanks)
The Bottom Line
Nvidia is such a great company with a visionary founder-led leader. Nvidia's TAM is huge and seems virtually unbounded, but the real risk to the stock at these valuations is what happens with the growth trade.
The company itself will be firing on all cylinders, and I do not doubt that it will deliver. That alone may make the stock worth a hefty premium, but is ~23 times sales too hefty a premium? I'm not so sure.
In any case, I'd take a raincheck on the name because the "growth at any price" trade seems all but done now that the Fed is so focused on inflation.
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Read full Disclaimer & Disclosure