Artificial Intelligence (AI) has been a game changer in the stock market, with companies like Nvidia and Palantir witnessing exponential growth. However, for those wondering if they’ve missed the opportunity, the AI revolution is just beginning, offering potential in overlooked stocks like Qualcomm and Alphabet. Here’s why these two companies could lead the next phase of AI-driven growth.

1. Qualcomm: Diversifying Beyond Smartphones

Qualcomm (NASDAQ: QCOM), long known for its dominance in smartphone chipsets, is emerging as a significant player in the AI space:

AI-Powered Innovations

  • Qualcomm has integrated AI capabilities into its chipsets, such as the Snapdragon 8 Gen 3, and the forthcoming Snapdragon 8 Gen 4, which will enhance smartphones with advanced AI functions. This could spark a new upgrade cycle for consumers.

Beyond Smartphones

  • Recognizing the potential decline in smartphone chipset demand, Qualcomm has diversified into:
    • Internet of Things (IoT): Connecting smart devices.
    • Automotive: AI-enhanced chips for vehicles.
    • PC Market: Entering a new competitive field with AI-driven solutions.

Financial Performance

  • In fiscal 2024, Qualcomm’s revenue increased by 9% to $39 billion, with net income rising 40% to $10 billion, driven by cost efficiencies and revenue diversification.
  • Despite losing business from Apple after 2026, Qualcomm has factored this into its projections, setting the stage for upside surprises in fiscal 2025.

Valuation Opportunity

  • Qualcomm trades at a P/E ratio of 17, significantly lower than peers like AMD (109) and Apple (42). This undervaluation, coupled with its strong positioning in AI, suggests room for price appreciation through multiple expansion and business growth.

2. Alphabet: Innovating AI and Beyond

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), the parent company of Google, has a long history of AI integration, but recent advancements position it as a leader for the next phase of AI.

AI Resilience

  • Google Gemini: Alphabet’s generative AI product addresses competition from ChatGPT, showcasing the company’s commitment to AI-powered solutions.
  • Advertising Resilience: While concerns about its advertising business persist, Alphabet’s deep AI integration and resources allow it to defend its search dominance.

Quantum Computing Breakthrough

  • Alphabet’s Willow quantum computing chip could redefine computing:
    • Capable of solving problems in minutes that would take traditional computers eons.
    • Error Reduction Innovation: Willow solves a key challenge in quantum computing by lowering error rates as qubit numbers increase, making the technology more viable.

Financial Strength

  • Alphabet generated $62 billion in free cash flow in the first nine months of 2024, demonstrating its capacity to fund innovation while rewarding investors with dividends.

Valuation

  • Trading at a P/E ratio of 25, Alphabet is the most attractively valued among the “Magnificent Seven” tech stocks. As its AI and quantum computing advancements mature, its valuation could increase significantly.

Conclusion: Qualcomm and Alphabet Are Positioned for AI-Driven Growth

Both Qualcomm and Alphabet offer compelling investment opportunities in the burgeoning AI sector:

  • Qualcomm is leveraging AI to diversify its revenue streams beyond smartphones, positioning itself for growth in automotive, IoT, and PCs.
  • Alphabet is not only defending its core search business with AI but also spearheading quantum computing advancements that could redefine the tech landscape.

With attractive valuations and strong growth catalysts, these two stocks could deliver substantial returns for investors in the years to come.

This story was originally featured on Finance.Yahoo.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.