Skip to main content

Apple Inc(AAPL-Q)
NASDAQ

Today's Change
Real-Time Last Update Last Sale Cboe BZX Real-Time

AI Is Taking Over Our Devices: 3 Stocks to Buy to Capitalize on the Extreme Growth of the Industry

Motley Fool - Sun Dec 3, 2023

One critical part of artificial intelligence (AI) is the devices that bring the technology to our fingertips. It is through such machines and gadgets that users reap the benefits of AI.

From the investor standpoint, devices can serve as another source of stock gains. Given its widespread recognition and leadership in the device industry, many will turn to Apple. However, sales of the iPhone have plateaued lately, and the stock turned increasingly to services to derive growth.

Knowing that, you may want to capitalize on the device trend through other stocks. For those looking for alternatives, Qualcomm (NASDAQ: QCOM), CrowdStrike (NASDAQ: CRWD), and Broadcom (NASDAQ: AVGO) could be unexpected options that could serve your portfolio well.

Qualcomm

Qualcomm is arguably the next most obvious stock after Apple for device-oriented AI stocks. Its chipsets go into the most advanced phones made by Apple, Samsung, and other top manufacturers. Despite efforts to diversify its revenue base, smartphone chipsets made up 74% of Qualcomm's revenue in fiscal 2023 (ended Sept. 24).

However, its largest non-chipset segment is Internet-of-Things (IoT). This consists of audio devices and cameras, as well as devices designed for smart fitness and smart homes. In addition to personal and home use, it applies this technology to retail, energy, utilities, and manufacturing applications. IoT accounted for 19% of Qualcomm's revenue in fiscal 2023.

Unfortunately for the company, amid an industry downturn and a sluggish economy, overall revenue fell 19% in fiscal 2023 to $36 billion. Not surprisingly, net income fell 44% to $7.2 billion during this period.

Nonetheless, revenue growth is rapid in better times, as revenue increased by 32% in fiscal 2022 and 43% in the prior fiscal year. Also, Qualcomm forecasts $9.5 billion in revenue at the midpoint for the first quarter of fiscal 2024, meaning the declines could soon end.

Moreover, its P/E ratio of 20 could begin to look inexpensive if profit growth returns. As Qualcomm continues to support more types of devices, investors could see an overdue recovery.

CrowdStrike

A cybersecurity stock in the device space is another alternative option, and CrowdStrike could serve investors well. The company's specialty is security for endpoints, which refers to devices such as laptops and smartphones.

Its Falcon line of cybersecurity products has a package called Falcon Device Control that includes safeguards for safe USB device use, automatic threat visibility, and the dashboards needed to monitor such threats. For additional protection, Falcon On-Demand Scan will also scan files on your devices.

Additionally, the continuous need for cybersecurity insulates CrowdStrike from most of the adverse effects of tech downturns. That may explain why revenue in the first three quarters of fiscal 2024 (ended Oct. 31) grew 38% to $2.2 billion.

Also, thanks to $107 million in interest income, CrowdStrike reported a net income of $36 million during that period. That was up from a loss of $136 million in the first nine months of the last fiscal year.

Admittedly, its 78 forward P/E makes CrowdStrike an expensive stock. But as the industry works to keep devices safe, CrowdStrike investors could justify the stock's valuation with its rapid growth path in a recession-resistant industry.

Broadcom

Broadcom is also a less obvious device stock, especially since it is in the process of expanding its software segment with its recent merger with VMware. However, like CrowdStrike, endpoint security is one of its many applications.

Moreover, on the semiconductor side of the business, it has developed numerous chips that support devices. This includes front-end modules and touch controllers, as well as semiconductors for wireless LAN and Bluetooth applications. Among its better-known products is the one that supports the Wi-Fi hotspot in Apple's iPhone.

This diverse selection of products has helped keep Broadcom in growth mode in a sluggish economy. Revenue came in at just under $27 billion in the first three quarters of fiscal 2023 (ended July 30), rising 9%.

Also, thanks to slower growth in operating expenses and unrealized gains from investments, its $11 billion in profits during that time frame rose 31% over the course of a year.

Additionally, its 29 P/E ratio is just above a multiyear low. With that relatively low valuation and an ability to maintain robust earnings growth in a sluggish economy, this device stock is in an excellent position to serve investors well.

10 stocks we like better than Qualcomm
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Qualcomm wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of November 27, 2023

Will Healy has positions in Qualcomm. The Motley Fool has positions in and recommends Apple, CrowdStrike, and Qualcomm. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.