AI-Enabled Smartphone Sales Could Be a Game Changer for Qorvo

Artificial intelligence (AI) is transforming multiple industries, including the smartphone market, which is seeing a resurgence after a challenging period. The rise of generative AI has provided a significant boost to smartphone sales, and chip supplier Qorvo (QRVO) is poised to benefit from this trend.

Qorvo's Q1 Fiscal 2025 Performance

Qorvo recently reported its fiscal 2025 first-quarter results for the three months ending June 29. The company's revenue increased by 36% year-over-year to $887 million, and non-GAAP earnings rose to $0.87 per share from $0.34 per share in the same period last year. These results surpassed analysts' expectations of $0.71 per share in earnings on $852 million in revenue.

Apple, which accounted for 46% of Qorvo's business last year, and Samsung, responsible for 12%, are pivotal to Qorvo's success. Samsung's Galaxy S24 series dominated the generative AI-enabled smartphone market in Q1 2024, with a 58% market share. This success likely contributed to Qorvo's strong quarterly performance, as highlighted by the company's management in their latest earnings call.

The AI Smartphone Market: A New Growth Opportunity

The AI smartphone market is expected to offer substantial growth opportunities for Qorvo. With Apple's anticipated launch of AI-capable iPhones, Qorvo could see a significant boost in its business. Apple has developed a suite of AI-focused features, known as Apple Intelligence, which are expected to be included in the new generation of iPhones. This follows the successful launch of an AI-focused iPad in May, which led to a 24% year-over-year increase in iPad revenue last quarter.

Generative AI smartphone shipments are projected to grow at an annual rate of 78% through 2028. Apple's move into this market with its new iPhone lineup could potentially increase iPhone sales by 10% in the second half of 2024, as reported by Bloomberg.

Qorvo's Strategic Position

Qorvo appears well-positioned to capitalize on this trend. CEO Robert Bruggeworth emphasized the company's focus on increasing its content in Apple's products during the recent earnings call:

"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 strategic positioning and focus on innovation suggest that Qorvo is set to benefit significantly from the AI-driven growth in the smartphone market.

Financial Outlook and Valuation

Analysts have raised their revenue expectations for Qorvo, reflecting the company's improving growth prospects. The chart below illustrates these updated revenue projections:

QRVO Revenue Estimates for Current Fiscal Year Chart

Moreover, Qorvo's earnings are expected to grow healthily over the next few fiscal years, as shown in the following chart:

QRVO EPS Estimates for Current Fiscal Year Chart

Currently, Qorvo is trading at just 16.4 times forward earnings, which is a discount compared to the Nasdaq-100 index's forward price-to-earnings multiple of 28. If Qorvo can achieve $10.17 per share in earnings in a couple of years and maintain its current earnings multiple, its stock price could reach $167, representing a 54% increase from current levels. If the market rewards Qorvo with a higher multiple due to its AI-driven growth, the stock could deliver even more substantial gains.

Conclusion

Qorvo's recent performance and strategic positioning in the AI-enabled smartphone market make it an attractive investment opportunity. As AI continues to drive growth in the smartphone industry, Qorvo's robust relationships with key players like Apple and Samsung, coupled with its focus on innovation, position it well for future success. Investors looking to add a promising AI stock to their portfolios should consider Qorvo before it embarks on a potential bull run.