Arm and Qualcomm Lead Mobile Chip Design. 1 Stock Is the Better Buy.
Both of these stocks saw their shares in free fall following earnings.
Qualcomm (QCOM) and Arm Holdings (ARM) are the two dominant mobile chip designers, with Qualcomm leading in terms of actual chip production and Arm holding a near monopoly in chip architecture licensing. Both companies saw their share prices drop after reporting weaker-than-expected earnings on November 4th. Arm's stock fell 14% and Qualcomm's was down roughly 14% as well.
Arm's quarterly revenue reached $1.44 billion, a 27% increase year-over-year, while Qualcomm's revenue fell 8% to $10.44 billion. Arm's adjusted net income was $566 million, or $0.52 per share, beating analyst estimates, while Qualcomm's adjusted earnings were $2.17 per share, slightly above estimates. Despite the recent earnings disappointment, Arm's long-term growth potential, powered by AI data center chip designs, makes it a more attractive long-term investment option, albeit at a high valuation of 220 times earnings.
Qualcomm, on the other hand, is trading at a more reasonable 19 times earnings but is facing rising supply costs that are impacting its profit margins. So, is it a good time to invest in either of these mobile chip designers? Both stocks have shown impressive growth in the past, with Arm delivering an impressive 47% annualized return over the past three years, but the current market conditions might not be the optimal time to buy either.
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