Investors seeking to profit from the increasing popularity of AI smartphones should consider purchasing this chip stock while it remains inexpensive. Despite a 20% drop from its 52-week high on June 18, Qualcomm (QCOM 2. 66%) shares have experienced substantial gains of over 20% year-to-date. However, there is a strong possibility that this semiconductor stock may recover from its current slump when it releases its fiscal 2024 third-quarter results on July 31. Let's explore the reasons for this potential outcome. Improved demand for smartphones could contribute to better-than-expected results for Qualcomm. On May 1, Qualcomm disclosed its fiscal 2024 second-quarter results (covering the three months ended March 24). The company's overall revenue remained steady year-over-year at $9. 4 billion. Revenue from the handset business also remained unchanged at $6. 2 billion. As a result, almost two-thirds of Qualcomm's revenue is derived from the sale of smartphone chips, meaning its prospects are closely tied to the health of this market. In 2023, the smartphone market faced challenges, with a 3% decline in shipments due to weak demand, according to market research firm IDC. However, 2024 has proven to be a more promising year, with a 7. 8% increase in smartphone sales during Q1, followed by a 6. 5% increase in Q2. IDC highlights that smartphones equipped with generative artificial intelligence (AI) features are experiencing faster growth than anticipated, and shipments are expected to reach 234 million units in 2024. Furthermore, AI smartphones still have significant room for growth, projected to account for 19% of the overall market this year. The strong growth in AI smartphone adoption should ideally benefit Qualcomm, as it already holds a 23% share of the smartphone processor market as of the end of 2023. Notably, during the May earnings call, Qualcomm management mentioned witnessing considerable adoption of generative AI smartphones in China, with premium devices from manufacturers such as Xiaomi, OnePlus, Vivo, and Huawei gaining momentum. It is worth noting that both Xiaomi and Vivo experienced substantial shipment increases last quarter. Vivo's smartphone shipments rose by 22% year-over-year, while Xiaomi reported a 27% year-over-year growth.

The significant rise in shipments from these Chinese manufacturers signals positive prospects for Qualcomm since it supplies its AI-focused smartphone chips to them. When Qualcomm released its previous results, it provided revenue guidance of $9. 2 billion for fiscal Q3. If achieved, this would represent a 9% year-over-year growth. Analysts predict earnings of $2. 25 per share on revenue of $9. 21 billion for Qualcomm, aligning with the company's guidance. However, the notable growth in AI smartphone shipments during the last quarter could enable Qualcomm to surpass Wall Street's expectations. Furthermore, thanks to the rapid adoption of AI smartphones, Qualcomm can maintain a robust growth trajectory in the long term. Looking at the bigger picture, IDC previously projected shipments of 170 million AI smartphones for this year. However, it has significantly revised its estimate, indicating that consumers are embracing this technology more rapidly than anticipated. Shipments of generative AI-enabled smartphones could surge from an estimated 234 million units in 2024 to 912 million units in 2028. This corresponds to an exceptional compound annual growth rate of 78% based on the 51 million units shipped in 2023. Such remarkable growth in the AI smartphone market bodes well for Qualcomm's outlook in the upcoming financial results. Consequently, the chances are good that this semiconductor stock will resume its upward trajectory in 2024. Therefore, now is an opportune time to purchase Qualcomm shares. The stock is currently trading at 26 times trailing earnings, presenting a discount compared to the Nasdaq 100 index's multiple of 32, which serves as a proxy for tech stocks. However, this attractive valuation may not last for long.