This growth stock could be ready to go parabolic, and it’s incredibly cheap right now

Known mainly for supplying chips to smartphone manufacturers, Corvo (QRVO -0.23%) has generated disappointing stock returns so far in 2024 with flat performance. This is quite low compared to the 32% gains recorded by the PHLX Semiconductor Sector The index has delivered on its promise so far this year, but the silver lining is that Qorvo stock has gained impressive momentum of late.

A closer look at the chart below indicates that Qorvo could be making a parabolic move.

Company shares, which counts Apple as the largest customer, are up 16% in June. A closer look at Qorvo’s latest quarterly report and its strong outlook indicates that the stock could maintain its formidable momentum and could even go parabolic, which refers to the rapid rise in a company’s price in a short period of time – as the right side. of a parabolic curve.

Let’s take a look at why this may be the case and also check out why now might be a good time to buy this chip stock.

Qorvo could surpass market expectations

Qorvo reported its fourth quarter fiscal 2024 results (for the three months ended March 30) on May 1. The company reported full-year revenue of $3.77 billion, an increase of 5.6% from the previous year. However, for the fourth quarter of fiscal 2024, Qorvo’s revenue soared 49% year over year to $941 million, significantly exceeding its forecast of $925 million for the quarter.

Qorvo attributed the strong year-over-year revenue gains to “significant content gains with key mobile customers and strong revenue growth in…(its) defense and aerospace businesses.” Management emphasized during the May earnings conference call that the company supplies radio frequency (RF) chips to major Android OEMs (original equipment manufacturers) such as Samsung.

Additionally, Qorvo’s products are gaining ground in China. China’s four major OEMs have adopted more of the company’s chips, and Qorvo is expected to begin volume delivery of its products to those customers this year. This explains why Qorvo’s guidance for the current quarter turned out to be strong. The company expects revenue of $850 million in the first quarter of fiscal 2025, which would represent a 30% increase from the same period last year.

The midpoint of its earnings forecast stands at $0.70 per share, more than double last year’s figure of $0.34 per share. However, Qorvo appears to have taken a measured approach to the full fiscal year, emphasizing that it expects a slight increase in revenue for fiscal 2025. Analysts are forecasting just a 3% increase in its figure revenue for the full year to $3.9 billion, followed by a larger increase of 8.3% in fiscal 2026.

However, don’t be surprised to see Qorvo end the year with stronger growth and beating analyst expectations due to the significant catalyst it’s riding on. Qorvo makes most of its revenue from the sale of mobile chips. Apple and Samsung are two of its biggest 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 makers in the world, with a combined market share of just over 38% in the first quarter of 2024. This puts them in a strong position to capitalize on the upcoming big news in the smartphone industry: – artificial intelligence (AI).

According to market research firm IDC, 170 million AI-enabled smartphones are expected to be sold in 2024, up from 51 million last year. This year, AI-enabled smartphones are expected to account for 15% of the overall smartphone market, indicating that their sales could continue to climb at an impressive rate in the long term. Counterpoint Research, for example, predicts that shipments of AI-enabled smartphones will increase fourfold over the next five years.

Samsung has already entered the AI ​​smartphone market with its Galaxy S24 series. This appears to have benefited Qorvo, as the company points out that smartphones with AI assistants require more RF content. And now, Apple looks set to enter the AI ​​smartphone market this year as well.

The company recently announced Apple Intelligence, a suite of applications that will allow customers to use several AI features such as transcribing and summarizing audio, creating images and emojis, and using of an AI-powered Siri. The addition of AI features to Apple’s upcoming iPhones is expected to provide a nice boost to the company’s sales, with shipments expected to increase 10% in the next fiscal year to 244 million units, according to JPMorgan.

For comparison, iPhone shipments were down nearly 10% in the first quarter of 2024. As a result, there’s a good chance its mobile business could deliver stronger-than-expected performance this year and help the company to experience faster growth.

Attractive valuation is another reason to buy the stock

Qorvo stock trades at 3 times sales and 18 times forward earnings. These multiples are significantly lower than the U.S. technology sector’s average sales multiple of 8.2 and earnings multiple of 48.

We saw that Qorvo saw impressive growth last quarter and its guidance for the current quarter is also strong. At the same time, the company’s prospects look better thanks to the improvement in the smartphone market, driven by the advent of AI. Qorvo’s profits have declined at an annual rate of nearly 9% over the past five years, but analysts expect annual growth of 10% over the next five years.

The strong AI-driven catalyst underpinning Qorvo could help it exceed market expectations. That’s likely why investors have been rushing into this semiconductor stock lately while it’s still cheap, and savvy investors looking to buy a potential AI winner may consider doing the same .