Known for supplying chips to smartphone manufacturers, Qorvo (NASDAQ: QRVO) has delivered disappointing stock market returns so far in 2024, with flat performance. That’s pretty weak compared to the 32% gain that the PHLX semiconductor sector The index has delivered so far this year, but the good thing is that Qorvo shares have been gaining impressive momentum lately.
A closer look at the chart below shows that Qorvo may be making a parabolic move.
Company shares, that’s what counts Apple as the largest customer, increased by 16% in June. A closer look at Qorvo’s latest quarterly report and its solid outlook indicate that the stock could maintain its stellar momentum and even go parabolic, which refers to the rapid rise in a company’s price in a short period of time – similar to the right. of a parabolic curve.
Let’s take a look at why that is and why now could be a good time to buy this chip stock.
Qorvo could exceed market expectations
Qorvo announced its fourth quarter fiscal 2024 results (for the three months ended March 30) on May 1. The company posted annual revenue of $3.77 billion, up 5.6% from the same period a year ago. However, for the fourth quarter of fiscal 2024, Qorvo’s revenue shot up 49% year over year to $941 million, easily exceeding expectations of $925 million for the quarter.
Qorvo attributed the robust year-over-year revenue increases to “significant content gains across key mobile customers and robust revenue growth in… [its] defense and aerospace sectors.” Management pointed out during the May earnings conference call that the company supplied radio frequency (RF) chips to flagship Android original equipment manufacturers (OEMs) such as Samsung.
Furthermore, Qorvo’s products are gaining popularity in China. The four largest OEMs in China have been acquiring more chips from the company, and Qorvo will begin volume shipping of its products to those customers this year. This explains why Qorvo’s expectations for the current quarter have proven solid. The company expects revenue of $850 million for the first quarter of 2025, which would be a 30% increase from the same period last year.
The midpoint of the earnings forecast is $0.70 per share, which would be more than double the $0.34 per share in the same period last year. However, Qorvo appears to have taken a measured approach for the full fiscal year, indicating that it expects revenues to increase modestly for the 2025 fiscal year. Analysts predict full-year revenue growth of just 3% to $3.9 billion, followed by a stronger 8.3% increase in fiscal 2026.
However, don’t be surprised if Qorvo ends the year with stronger growth and exceeds analyst expectations, thanks to a major catalyst it’s sitting on. Qorvo gets most of its revenue from the sale of mobile chips. Apple and Samsung are two of the largest customers. While Apple produced 46% of Qorvo’s revenue last fiscal year, Samsung accounted for 12%.
It’s worth noting that these are the two largest smartphone OEMs in the world, with a combined market share of just over 38% in the first quarter of 2024. This puts them in a solid position to capitalize on the next big thing in smartphones industry: – artificial intelligence (AI).
Market research firm IDC expects 170 million AI-enabled smartphones to be shipped in 2024, up from 51 million last year. This year, AI smartphones are expected to account for 15% of the total smartphone market, indicating that their sales could continue to grow at an impressive pace in the long term. For example, Counterpoint Research predicts that AI smartphone shipments will quadruple over the next five years.
Samsung has already jumped into the AI ​​smartphone market with its Galaxy S24 smartphone series. This appears to have benefited Qorvo, as the company points out that smartphones with AI assistants require more RF content. And now Apple appears to be looking to jump into the AI ​​smartphone market this year as well.
The company recently announced Apple Intelligence, a suite of applications that allow customers to use multiple AI features, such as transcribing and summarizing audio, creating images and emojis, and using an AI-powered Siri. The addition of AI features to Apple’s upcoming iPhones is expected to give the company a nice boost in sales, with shipments expected to grow 10% to 244 million units in the next fiscal year, according to JPMorgan.
By comparison, iPhone shipments fell nearly 10% in the first quarter of 2024. As a result, there is a good chance that the mobile business could deliver stronger-than-expected performance this year and help the company achieve faster growth.
An attractive valuation is another reason to buy the stock
Qorvo shares trade at 3 times sales and 18 times forward earnings. These multiples are significantly lower than the average revenue multiple of 8.2 and earnings multiple of 48 in the US technology sector.
We’ve seen Qorvo deliver impressive growth last quarter and expectations for the current quarter are also solid. At the same time, the company’s prospects are looking better thanks to an improvement in the smartphone market, driven by the advent of AI. Qorvo’s profits have fallen nearly 9% annually over the past five years, but analysts predict annual growth of 10% over the next five years.
The solid AI-related catalyst that Qorvo is sitting on could see it outperform market expectations. That’s likely why investors have been piling into these semiconductor stocks lately while they’re still cheap, and savvy investors looking to buy a potential AI winner might consider doing the same.
Should you invest $1,000 in Qorvo now?
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Apple. The Motley Fool recommends Qorvo. The Motley Fool has a disclosure policy.
This Growth Stock Could Be Ready to Go Parabolic, and It’s Incredibly Cheap Right Now Originally published by The Motley Fool
