Virtual reality partnership with Meta is another way Qualcomm is broadening beyond smartphone chips

Published Fri, Sep 2 202212:28 PM EDTUpdated Fri, Sep 2 20221:10 PM EDT

It's always nice when two companies we are invested in come together to develop innovative products that could one day change our daily lives. That's the type of news we were greeted with Friday morning after learning that Meta Platforms (META) and Qualcomm (QCOM) are teaming up to make custom chipsets that will be used for virtual reality (VR) products. The two companies announced a multi-year strategic agreement "to develop premium experiences that leverage custom Snapdragon XR platforms for the Meta Quest platform." The companies had previously worked together for over seven years developing VR products, most recently with Meta Quest 2, and this agreement "solidifies the mutual commitment to deliver multiple generations of premium devices and experiences powered by custom VR platforms in the years to come," according to press release . Financial details of the agreement not disclosed. We see this news as a nice win for Qualcomm given the huge bet Meta, formerly named Facebook, is making on virtual reality and the billions of dollars it is investing into buildout its metaverse, a digital world that Jim Cramer got to experience first-hand when he interviewed CEO Mark Zuckerberg back in June . Qualcomm's huge handset business, thanks to its growing partnership with Samsung, and emerging auto and internet-of-things businesses get most of the attention from shareholders, but its leadership in augmented reality (AR) should not be overlooked. In January, Qualcomm announced a collaboration with Microsoft (MSFT), another Club holding, to expand and accelerate its adoption of AR in both the consumer and enterprise sector. One project the two companies are working on together is the development of a custom AR that enables power-efficient, lightweight AR glasses. Speaking of autos, we are counting down the days to Qualcomm's Sept. 22 Auto Investor Day. As we wrote Thursday, the meeting is expected to be shaped around the company's Snapdragon Digital Chassis, an integrated set of open, cloud platforms that let drivers connect their cars, as well as its so-called One Technology Roadmap. We hope this is the event where Qualcomm finally starts getting respect on Wall Street for its fast-growing Auto business. One way we can tell that Auto will be a huge business for Qualcomm is through its backlog, which represents deals it won and should materialize into revenue in the future. At the end of the most recently reported quarter, Qualcomm's Automotive backlog stood at more than $19 billion, representing an increase of $3 billion from the prior quarter. With a price-to-earnings multiple of about 10x, we think QCOM trades too much like a handset chip marker and not enough like the diversified semiconductor company it has turned into. Lastly, we want to touch back on the important story that had a significant impact on semiconductors Thursday. The entire semiconductor was hit after Nvidia (NVDA) disclosed the U.S. government restricted the sale of high-performance GPUs that specialize in artificial intelligence to select Chinese customers over risks that they may be used by the Chinese military. We don't know yet if the U.S. restrictions will extend to other types of chips. It's too hard to predict right now, but we believe it's prudent to be cautious about any company that sells products related to national security as escalating tensions between the two countries are a real worry. But for now, we think the government restrictions will not have a material impact on Qualcomm's business. Advanced Micro Devices (AMD) has already said the restrictions won't be material to its business. One day after a rough session, chips stocks were stabilizing Friday. (Jim Cramer's Charitable Trust is long QCOM, META, MSFT, NVDA and AMD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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