QCOM Qualcomm
Diversifying mobile IP franchise at fair value, not cheap
The story
Qualcomm is a mobile chipset franchise transitioning from a post-smartphone-cycle trough toward diversification in automotive, IoT, and data center (AWS deal). Its IP licensing business provides a durable moat with high incremental margins, but handset dependence (~70% of revenue) limits growth to modest single digits. The company is in late-maturity: excess returns persist but are compressing as competition intensifies and the smartphone market saturates.
Y1 growth of 7% reflects the AWS data center win plus automotive/IoT ramp offsetting flat handset trends; terminal growth of 3.5% stays below the 4.94% risk-free rate reflecting long-run semiconductor cyclicality. Target margin of 28% converges from the current 27% TTM toward a sustainable blend of licensing economics and increasingly competitive chip margins, below the 35% peak. Sales-to-capital of 1.50 is modestly above the TTM 1.22, reflecting Qualcomm's asset-light IP model as automotive and IoT scale without proportionate capex.
Value drivers
| Revenue growth (Y1) | 7.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 7y |
| Target operating margin | 28.0% |
| Years to target margin | 3 |
| Sales-to-capital | 1.50 |
| Beta | 1.30 |
| Failure probability | 3.0% |
| Cost of capital (WACC) | 10.3% |
| Terminal WACC | 9.1% |
Valuation bridge
| PV of explicit FCFF | 38.62B |
| PV of terminal value | 82.42B |
| Equity value | 108.40B |
| ÷ shares → per share | $101.49 |
News
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- Meta upgraded, Nvidia initiated: Wall Street's top analyst calls
- Is Marvell The Broad Chip Business You Think You Own?
- ASML vs. QCOM: Which Semiconductor Stock is the Better Buy Now?
- Nvidia-Backed MediaTek's Sales Soar 44% With AI Chip Momentum
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 47.15B | 7.0% | 27.3% | 8.38B | 2.06B | 6.32B | 5.73B |
| 2 | 50.18B | 6.4% | 27.7% | 9.02B | 2.02B | 7.01B | 5.76B |
| 3 | 53.11B | 5.8% | 28.0% | 9.67B | 1.95B | 7.71B | 5.75B |
| 4 | 55.89B | 5.3% | 28.0% | 10.17B | 1.86B | 8.31B | 5.61B |
| 5 | 58.50B | 4.7% | 28.0% | 10.65B | 1.74B | 8.91B | 5.45B |
| 6 | 60.89B | 4.1% | 28.0% | 11.08B | 1.59B | 9.49B | 5.27B |
| 7 | 63.02B | 3.5% | 28.0% | 11.47B | 1.42B | 10.05B | 5.06B |
Key risks
- Handset market saturation or share loss to MediaTek/Apple in-house silicon
- Regulatory pressure on licensing royalty rates from China and other jurisdictions
- Data center and automotive diversification failing to offset secular smartphone decline
Catalysts
- AWS data center design wins expanding to additional hyperscalers
- Automotive design pipeline converting to revenue at higher ASPs