Qualcomm's (NASDAQ:QCOM) Q2 Sales Top Estimates, Stock Soars

Wireless chipmaker Qualcomm (NASDAQ:QCOM) reported Q2 CY2024 results topping analysts' expectations, with revenue up 11.1% year on year to $9.39 billion. Guidance for next quarter's revenue was also optimistic at $9.9 billion at the midpoint, 2% above analysts' estimates. It made a non-GAAP profit of $2.33 per share, improving from its profit of $1.87 per share in the same quarter last year.

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Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.

Processors and Graphics Chips

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Qualcomm's revenue growth over the last three years has been unremarkable, averaging 9.6% annually. As you can see below, this was a weaker quarter for the company, with revenue growing from $8.45 billion in the same quarter last year to $9.39 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Qualcomm had an average quarter as its 11.1% year-on-year revenue growth beat analysts' estimates by 1.9%. This marks 3 straight quarters of growth, implying that Qualcomm is in the middle of its cycle, as a typical upcycle generally lasts 8-10 quarters.

Qualcomm's management team believes its revenue growth will accelerate, guiding to 14.7% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 10% over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Qualcomm's DIO came in at 131, which is 26 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Qualcomm's Q2 Results

It was good to see Qualcomm beat analysts' EPS expectations this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock traded up 6.3% to $192.17 immediately after reporting.

Qualcomm may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.