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Qualcomm, a maker of mobile processors and 5G wireless chips, could be an underappreciated beneficiary from the rising trend toward artificial intelligence, TD Cowen says.

On Wednesday, analyst Matthew Ramsay reiterated his Outperform rating on

Qualcomm

(ticker: QCOM) shares and his $135 price target for the stock after meeting with CEO Cristiano Amon. Qualcomm stock was up 0.3% to $115.47 in Thursday trading.

“In management’s view, as AI adoption grows and as computing demands increases, a hybrid AI architecture will be needed to distribute processing across the cloud and end-devices rather than within the cloud alone,” he wrote. “We see Qualcomm as positioned to leverage its existing expertise and share in handsets and mobile devices into emerging edge computing and inference [using a pre-trained AI model to give an answer] applications.”

Generative AI has been a popular investment theme as interest in the topic has taken off following OpenAI’s release of ChatGPT last year. The technology ingests text, images, and videos in a brute-force manner to create content. Chatbots like ChatGPT use a language model that generates humanlike responses, or their best guesses, based on word relationships found by digesting what has previously been written. The concept is similar to a more advanced version of the auto-complete predictive keyboard on smartphones.

The analyst said doing some of the AI processing on devices such as smartphones using Qualcomm chips will provide better performance and lower response times to queries. He also said the chip maker has an array of AI software tools that could help developers build their machine-learning applications.

At the same time, though, Ramsay said current business trends for Qualcomm likely haven’t improved in its core markets. Last month, the chip maker provided a disappointing revenue forecast for the current quarter, citing softening demand for smartphones and a challenging economic environment.

“Handsets remain very much mixed given macro/China weakness, but Qualcomm well positioned for any rebound with [its] compelling valuation,” he wrote.

Qualcomm shares have declined about 18% over the past 12 months. That compares with a 16% rise for the

iShares Semiconductor ETF

(SOXX), which tracks the ICE Semiconductor Index.

Write to Tae Kim at tae.kim@barrons.com