The last three years have been disappointing for Qualcomm (QCOM 5.66%) Investors: The shares of the semiconductor specialist have gained only 8%, compared to the 36% gains of the PHLX Semiconductor Sector Index over the same period. This is not surprising given the weakness of the smartphone market during this period.

Smartphone sales fell from 1.54 billion units in 2019 to 1.36 billion units the following year. The market didn’t see much growth until 2023 – it shipped 1.34 billion units last year. Given that Qualcomm generated 62% of its revenue from selling smartphone chips last quarter, it’s easy to see why the stock has underperformed the overall market in recent years.

But will the next three years be a game-changer for Qualcomm, especially given that the company has a new catalyst in artificial intelligence (AI)? Let’s find out.

Qualcomm’s growth is back on track

The weakness of the smartphone market has slowed Qualcomm’s revenue growth over the past three years, as shown in the graph below.

QCOM top-line data (TTM) by YCharts.

However, Qualcomm’s results for the third quarter of fiscal 2024 (which ended June 23) suggest that the tide is turning. The chipmaker’s quarterly revenue rose 11% year over year to $9.4 billion, while adjusted earnings rose 25% year over year to $2.33 per share. On revenue of $9.2 billion, Wall Street would have been satisfied with earnings of $2.25 per share.

Even better, Qualcomm’s forecast was more optimistic than analysts’ expectations. The company expects earnings of $2.55 per share on revenue of $9.9 billion for the current quarter. That’s better than consensus expectations of $2.45 per share on revenue of $9.69 billion.

Qualcomm forecasts revenue to grow 14% year-on-year, an improvement from the previous quarter. Earnings growth would be 26%, which is the midpoint of Qualcomm’s forecast. Still, investors hit the panic button following Qualcomm’s results after the company suggested that the smartphone market recovery would not be quick.

CEO Cristiano Amon indicated on the company’s recent earnings call that the smartphone market could see “flat to single-digit growth.” This seems to have caused disappointment among investors; Qualcomm shares fell more than 5% after the results were released. However, investors should look at the bigger picture. The growth of the AI-enabled smartphone market should ideally allow the company to maintain its newfound growth momentum.

Although the overall growth of the smartphone market may not be very attractive, as Amon’s comments show, he pointed out that premium smartphones are growing faster. In addition, the Qualcomm CEO noted that the demand for AI-enabled smartphones plays a central role in the demand for premium devices.

This is not surprising, as according to Counterpoint Research, smartphone shipments with generative AI are expected to increase fourfold between 2024 and 2027. And even then, the AI ​​smartphone market will have more room to grow, with generative AI smartphones expected to account for 43% of global smartphone shipments in 2027, up from 11% this year.

With the AI ​​smartphone market currently in its early expansion phase, Qualcomm could be at the beginning of a rapid growth curve that could lead to healthy increases in the company’s revenue and profits over the next three years.

Better growth prospects could help the stock achieve solid price gains

Qualcomm will likely end the current fiscal year with revenue of $38.6 billion, based on the revenue it generated in the first nine months and the guidance it issued for the current quarter. That would be an increase of 8% from the same period last year. However, revenue growth in fiscal 2025 is likely to be in the double digits, just above 10%.

As Qualcomm’s recent results and guidance for the current quarter show, the company could do even better considering the acceleration of its growth and the strong long-term opportunities in the form of AI smartphones. The company is currently reporting earnings growth of over 20%, much faster than the 11% annual earnings growth that analysts are forecasting for Qualcomm over the long term.

Assuming the company can even post a 15% annual earnings growth rate over the next three years, its earnings could rise to $15 per share (based on the fiscal 2024 earnings estimate of $9.90 per share). Multiplying that by Qualcomm’s current price-to-earnings ratio of 23 means it could be trading at $345 per share after three years. That would be double Qualcomm’s current stock price.

It’s worth noting that Qualcomm stock is a value play considering the Nasdaq-100 has an earnings multiple of nearly 31. Investors are therefore getting a solid deal on this semiconductor stock that could generate healthy profits over the next three years, and they should consider grabbing this opportunity with both hands while the company is still undervalued.