This is why I am actively buying Qualcomm shares right now!
We believe that investors can expect double-digit returns from current price levels as recent developments add to the company's longer-term prospects.
Investing in individual stocks is challenging and definitely time-consuming. In our opinion, to be successful in stock picking, long-term-oriented investors need to consider every single company they invest in as a company they would like to own entirely. To get to this level, you need to understand the business up to a certain depth and detail. This then gets even more time-consuming, but luckily, we are here to help.
In these posts (our stock updates), we often discuss in detail very specific business and product developments that can have a material impact on a company or stock, fine-tuning our financial estimates. We always discuss companies we have discussed before and which we follow actively.
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Qualcomm Incorporated
This week, the company we are taking a close look at is Qualcomm QCOM 0.00%↑, the undisputed leader in mobile, 5G connectivity, automotive, and IoT chipsets. I last covered the company in May after it reported very solid Q2 results and rated shares a careful Buy.
I continued to view Qualcomm as a promising investment, even as it is facing above-average risks due to its significant dependence on Apple, competition from Huawei in China, and the slow-growing handset/mobile market. However, Qualcomm management is working hard to offset these risks by pushing into new markets and focusing on impressive levels of innovation, focusing on the highly promising automotive market and IoT.
All in all, I concluded that Qualcomm shares at a share price of around $180 remained attractive enough to warrant a buy rating, and based on a multiple of 18x earnings, I calculated a target price of $224 for 2026. Ever since, shares have already hit $228 before falling back to a current share price of $198, up 15% since my buy call, which is solid enough!
A lot of these gains are the result of not only market optimism but also the continued push and investment made into AI technology, in which Qualcomm is looking particularly good. However, this isn’t what I want to focus on today. (Definitely make sure to check out my previous post on Qualcomm for much more information through the button below.)
You see, in addition to a push into the automotive and IoT market in recent years, Qualcomm has been eyeing an entry into the PC processor market after it acquired Nuvia in 2021, a company founded by previous Apple employees and focusing on ARM-based CPUs.
With a market size of $115 billion as of the end of 2023 and a projected growth rate of mid-single digits through the end of the decade, Qualcomm has a massive opportunity.
Notably, the much anticipated Qualcomm CPUs have finally come to market in recent weeks through some of the biggest PC brands, and the first benchmark tests and reviews are in.
Considering how big of an opportunity this is for Qualcomm and its shareholders, in this post, I want to take a close look at how Qualcomm’s first ARM-based PC CPU products are doing, getting a better sense of just how big this opportunity really is and just how good these highly anticipated processors are.
Let’s dive in!
Is Qualcomm able to meet expectations?
We can safely say there was a lot of anticipation for the release of Qualcomm’s PC processors after Qualcomm had been throwing around crazy stats in recent months, claiming it should beat Apple’s M3, Intel’s Core Ultra 9, and AMD’s Ryzen 9 in daily tasks, power efficiency, and battery life. Moreover, management claimed its CPU would be the global leader in on-device performance and power efficiency for the Windows ecosystem and would be positioned to compete immediately.
In addition, Qualcomm is once again a frontrunner in next-gen technology with its latest Snapdragon chipsets, including its CPU, bringing AI to mobile and PC. Today, most AI programs are run in distant data centers, but this will not be the future, it seems. You see, running this in these data centers is very expensive and far from ideal.
In fact, according to Dell CEO Michael Dell, AI inferencing can be 75% more cost-effective on-premise versus in the cloud. As a result, 83% of enterprise CIOs expect to repatriate workloads from the public cloud to on-premises.
Through Qualcomm’s latest chipsets for mobile and PC, significant LLMs can now be run on the device, not needing any cloud involvement, resulting in “lower cost per query, lower latency, unlimited personalization, better availability, and greater privacy and security."
Qualcomm was one of the first to realize this, which created some additional hype around its PC processor. Qualcomm claims its newest and first CPU would excel in running AI programs and is best suited for the next generation of PCs.
Well, bring in the disappointment, right? We are clearly heading that way, and yes, it was unavoidable that at some point, we would end up disappointed in some way, which indeed (spoiler) happened in recent weeks.
In prior posts, we were pretty clear on our stance: We take a conservative approach and do not incorporate any potential PC revenues into our estimates. So far, we have taken a first-see-than-believe approach and have clear reasons for this.
You know, entering this market isn’t a breeze, as it is not only about delivering a capable chip. Since Qualcomm is using ARM architecture as opposed to the X86 used by Intel and AMD, there have been concerns about some initial compatibility issues with Windows, as well as with other software programs.
See, while Apple has proven that an ARM-based SoC can destroy the likes of AMD and Intel on battery life, power consumption, heat, and performance using its own software, Microsoft has so far been unable to create a competitive option through the ARM architecture for Windows, and so obviously, this was always going to be a challenge for Qualcomm.
And indeed, the reason for the decline in Qualcomm’s share price over the last week was some reports claiming that Qualcomm’s CPU is struggling to run important and popular software titles, such as some Adobe, and popular games like Fortnite and League of Legends, as these were built for X86 processors, as is much of the software out there.
Importantly, these reports weren’t unfounded either. However, let’s start with the basics.
Initial results look promising
In recent weeks, the first PCs fitted with Qualcomm’s high-end Snapdragon X series of processors started shipping. To be precise, these have already been adopted by a range of top PC brands like Samsung, Dell, ASUS, and HP models, among others, on high-end Copilot Plus laptops.
These Copilot Plus laptops, running on Windows 11, are incredibly interesting as they are equipped with several AI features, which can be run on the devices thanks to the Qualcomm chipset. This includes transcribing meetings, logging closed webpages, and using AI for search. This all happens locally, granting optimum response time and privacy.
Ideally, these Copilot PCs run on ARM architecture, of which Qualcomm is currently the only suitable supplier. According to Microsoft, these Copilot+ PCs are the fastest and most intelligent Windows PCs ever built and are a real competitor to Mac.
This in itself is already incredibly exciting, including for Qualcomm.
And positively, the first benchmark tests are looking more than solid. While we are still very much in the early phase, Qualcomm’s high-end 12-core CPU is beating Apple’s high-end M3 chip found in the latest MacBook Air in multi-core scores, which is a pretty significant milestone. Yes, it remains behind in single-core processing, which means the Mac probably still is the best in most simple tasks, but it is a strong start for Qualcomm.
Without boring you with too many performance numbers, here are some Geekbench testing results for Qualcomm’s Snapdragon X Elite in the new Microsoft Surface Pro against the M3 Air, respectively:
Single core 2,800 vs 3,000
Multi-core 14,300 vs 12,000 (20% difference)
Crucially, the Qualcomm chipset in the Microsoft Surface also is pretty damn close in power efficiency as well. While it isn’t quite there yet compared to Apple’s flagship devices, testing showed a battery life of over 12 hours, which is notable in a Windows device - it seems that Snapdragon X could finally help Windows laptops last nearly as long as Apple’s PCs. It is worth pointing out that Apple is the undisputed king in battery life.
So far, this is looking pretty damn tremendous, considering this is Qualcomm’s first real attempt to enter this market. And while it doesn’t annihilate the competition, Qualcomm looks real competitive, which is above what many expected despite management’s promises.
We can safely say already that Apple, AMD, and Intel will be on notice.
Not all is positive
Of course, not all is positive for Qualcomm, as you’d expect with any new product. Among the negatives is the CPU's gaming performance, which seems to lack competition. However, this probably also isn’t Qualcomm’s focus area and selling point. It seems to focus on productivity, notable AI features, remarkable battery life, and excellent performance.
(Just buy a gaming laptop if that is what you’re looking to use it for.)
However, Qualcomm also faces more significant issues. According to the Wall Street Journal, Samsung indicates that its most recent models equipped with the Qualcomm CPU are indeed facing compatibility issues with Adobe software and some specific games. This also includes many security programs and the Google Drive desktop app.
Obviously, this isn’t great, but as indicated, it is very much expected. It will most certainly take some time for these issues to be worked out.
I am not worried too much at this point. As long as adoption is good, software developers will follow suit. This is why current compatibility issues are expected to be solved relatively quickly, with some Adobe software getting updated in July already.
Therefore, I am actually quite optimistic.
Qualcomm is sitting in a prime position now
Remarkably enough, Qualcomm has immediately worked itself into a leadership position in the PC processor space. Thanks to an exclusive collaboration between the two parties (Microsoft and Qualcomm), Qualcomm is currently the only supplier of chipsets suited for the Windows Copilot+ PCs, giving it a significant edge in the PC AI space.
Qualcomm has already made a toolkit available to developers to work around X86 limitations and to develop software suited for its ARM processors. Again, this puts it in a brilliant position, especially with its products also looking very solid in terms of performance across the board.
Interestingly, a recent survey showed that 75% of CIOs in the U.S. and Europe are looking to evaluate and plan for AI PCs as the next step. As a result, Morgan Stanley now expects AI PCs to account for 64% of all new PCs sold by 2028, up from 2% in 2024. For reference, this translates into a CAGR of almost 140% for AI PCs, obviously from a very low base in 2024. However, this still translates into a market size of around $76 billion in 2028, which is significant and a massive opportunity for Qualcomm as the frontrunner.
Conclusion, outlook, and valuation
Now, it is probably too early to really turn bullish on Qualcomm’s PC business right now. Yes, there is incredible potential right here, and I would not be surprised if Qualcomm becomes a significant challenger to AMD, Intel, and Apple in the next generation of computing. Right now, this seems like a serious opportunity.
However, I would really like to first hear management's commentary on the release of its PC products in the next earnings call and get a better sense of the company’s position in this industry by the end of the calendar year.
For now, I am very optimistic and happy with the initial readings and the position Qualcomm has put itself in as a brilliant innovator in another market. Therefore, I am carefully adjusting my financial projections to account for some PC revenues starting in 2025 but mostly heading into 2026 and 2027. However, note that these forecasts remain very conservative – there are significant upsides to these estimates if Qualcomm can capture a substantial share of this market. This easily is a multi-billion opportunity for Qualcomm.
You’ll find my updated estimates below!
Based on these updated estimates and the recent sell-off of Qualcomm shares, these now trade roughly 20x earnings, which is still up from 18x when I last covered the shares and a 20% premium to its 5-year average. However, this seems more than deserved, considering the company is looking better than ever in the last five years and is becoming a primary beneficiary of the booming demand for AI.
Considering this and the very solid-looking outlook painted above, I think a 20x multiple is more than fair for Qualcomm, possibly even slightly conservative, considering its position in automotive and potentially in PC processors. Based on this multiple and my FY26 EPS projection, I calculate a target price of $258. From a current price of $198, this represents potential annual returns of 10.5% or over 12% including the current 1.6% yield investors will also benefit from.
Overall, this indicates that the current sell-off actually presents a massively compelling opportunity to build or initiate a position in this incredibly high-quality business. We continue to view Qualcomm as a massively interesting business and a top innovator, leading in the exciting automotive and connectivity markets while successfully entering (or at least it seems) the PC market.
We rate Qualcomm shares a “Buy” and plan to add to our position.
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I valued it with less upside in revenue than you and one model valued at $156 and my other at $248. It is a buy for me too but I would prefer an even lower price 😉
Some great insight!