Will this low-cost AI stock explode in 2025?

This year is far from memorable for investors in Qorvo (NASDAQ: QRVO)whose shares have fallen 38% year to date, as the index PHLX Semiconductor Sector recorded a 23% increase in 2024. Known for supplying chips to giants like Apple (NASDAQ: AAPL) and Samsung, Qorvo saw its shares plummet after reporting its fiscal second quarter 2025 results in October. Although revenues and profits beat Wall Street expectations, the disappointing outlook sparked a negative reaction from investors.

Let's analyze the reasons for this situation and see if Qorvo can take advantage of the growing demand for artificial intelligence (AI) smartphones and turn things around in the coming months.

Qorvo under short-term pressure

Qorvo's revenue for the second quarter of fiscal 2025 decreased 5% from a year earlier, reaching $1.05 billion. The company's adjusted earnings fell to $1.88 per share from $2.39 a year earlier, marking a 21% decline. Analysts had expected earnings of $1.85 per share on revenue of $1.03 billion.

However, Qorvo failed to follow up its slightly better-than-expected results with strong guidance. The company expects revenue of $900 million for the current quarter, with adjusted earnings of $1.20 per share. Expectations were set for $1.06 billion in revenue and $1.92 in earnings per share.

Qorvo therefore missed Wall Street's forecasts for the fiscal third quarter by a significant amount, causing investors to give in to concern. Additionally, the company expects its fiscal 2025 revenue and gross margin to be slightly lower than 2024 levels. Qorvo management attributed its disappointing forecast to a shift toward entry-level 5G Android smartphones, to the detriment of mid-range models.

This shift toward lower-cost smartphone models could mean that Qorvo sells chips with lower margins, resulting in lower revenue compared to chips intended for mid-range smartphones. Despite this, demand for high-end smartphones remains strong, while the situation seems less favorable for lower segments.

Qorvo's forecast for the current quarter indicates a potential drop of 16% from the previous year. Earnings will also take a hit, with the year-ago figure coming in at $2.10 per share. Consensus estimates suggest a 2.5% decline in Qorvo's revenue this year, hitting $3.68 billion, while earnings could plunge 22% to $4.82 per share.

A possible increase in profits next year

According to market research firm Counterpoint Research, the global smartphone market could register 5% growth in 2024 with 1.23 billion units, followed by a 3% increase the following year. However, one segment of the smartphone market is expected to see accelerated growth: generational AI smartphones.

Shipments of these smartphones are expected to increase by 73% next year, with IDC anticipating an impressive 78% annual growth through 2028. Apple and Samsung dominate this sector. For example, Samsung is expected to capture 20% of the AI ​​smartphone market in 2024, while Apple is expected to account for 16% of that market.

This bodes well for Qorvo, as these companies constitute its main customers. Apple generated 46% of Qorvo's revenue in 2024, while Samsung contributed 12%. These two partners could promote a turnaround for Qorvo next year. Apple, in particular, could benefit from the growing adoption of AI smartphones following the release of its iPhone 16 models.

Although the tech giant is gradually introducing its suite of AI features, a large number of older iPhones falling within an upgrade window could entice more users to buy its smartphones next year. Analysts also predict a significant double-digit increase in iPhone sales in the coming years.

At the same time, Samsung is stepping up production of its next generation of Galaxy smartphones, current flagship models expected in early 2025. From then on, there is a real possibility that Qorvo's financial performance will begin to improve next year. Analysts also predict a recovery in the company's financial indicators in the coming fiscal years.

QRVO revenue estimates for the next fiscal year, data from YCharts

If Qorvo does indeed manage to recover in 2025, this semiconductor stock could benefit from some nice momentum, making the next few months crucial for investors who might consider buying at that time, as soon as signs recovery will be felt.

It's also worth noting that Qorvo currently trades at a low multiple of 11.4 times forward earnings and 1.7 times sales. Although the company's recent performance hasn't been up to par, the attractive valuation and potential of the AI ​​smartphone market could make it an interesting choice for the future.

Takeaways

• The year 2023 was difficult for Qorvo, with a significant loss in value of its shares.
• Qorvo's financial forecasts remain worrying due to a drop in margins in an entry-level smartphone context.
• The emergence of AI-powered smartphones could provide a significant boost to Qorvo's performance in the coming years.
• Close business relationships with Apple and Samsung are major assets for the company.

In an uncertain economic climate, a company's ability to adapt and respond to new technological trends will be decisive for its future performance. The evolution of the AI ​​smartphone market could well redefine Qorvo's place in the industry, and it will be interesting to follow this transformation in the months to come.

Original article written by: Harsh Chauhan.