Why Qualcomm’s $240 Price Tag Makes It a Must-Have for Long-Term Investors
Is Qualcomm’s New X85 Modem and AI Strategy Enough to Drive Its Future Growth, or Will Market Risks Outweigh Its Potential? | That's TradingNEWS
Qualcomm's Strategic Growth in 5G, AI, and Diversification: Why NASDAQ:QCOM Is a Strong Buy
Qualcomm (NASDAQ:QCOM) has consistently evolved, positioning itself as a dominant player in 5G and mobile technology, while also diversifying its business to include automotive, IoT, and AI-driven solutions. As of March 2025, the company continues to deliver strong performance, with a clear path for growth ahead, despite risks such as the increasing competition from Apple (AAPL) in the 5G modem market. Priced at $240 per share, Qualcomm represents a strong investment opportunity, driven by its leadership in key technologies, solid Q1 2025 results, and an innovative future with its new X85 modem and other strategic initiatives.
X85 Modem Launch: A Game Changer for Qualcomm’s Future
On March 3, 2025, Qualcomm unveiled its latest X85 modem, marking a significant leap in mobile connectivity with the integration of a 5G AI processor. The X85 modem promises a 30% improvement in AI inference efficiency, a critical enhancement that could revolutionize AI-powered mobile devices, including smartphones. Qualcomm's CEO, Cristiano Amon, indicated that this modem could outperform Apple’s in-house 5G modem, strengthening Qualcomm’s competitive position in the mobile space. The launch of the X85 modem solidifies Qualcomm’s dominance in the non-Apple smartphone market, particularly as AI and hybrid tasks require ever-faster connectivity and seamless data exchange.
Q1 FY25 Results and Strong Business Growth
Qualcomm’s Q1 FY25 results exceeded expectations, showing 18% revenue growth and 24% adjusted earnings per share (EPS) growth, driven by strong performance across multiple sectors, including handsets, automotive, and IoT. Handset sales, fueled by the launch of Samsung’s Galaxy S25 powered by Qualcomm’s Snapdragon 8 Elite processor, were the largest contributor to growth. In addition, automotive revenue surged by 61%, and IoT revenue grew by 36%. These positive figures show that Qualcomm’s diversification strategy is paying off, reducing its reliance on the highly competitive smartphone sector and increasing its market reach in automotive and IoT.
For the upcoming quarter, Qualcomm has projected a revenue range of $10.3 billion to $11.2 billion, which represents a 15% year-over-year growth. Looking ahead to FY25, Qualcomm expects continued growth of 15%, supported by strong shipments of Samsung Galaxy S25 smartphones and a robust pipeline in automotive and IoT sectors. The company’s focus on these high-growth segments could help offset any potential losses from Apple’s in-house modem development.
Diversification in Automotive, IoT, and PCs: Fueling Future Growth
While Qualcomm’s handset business remains a core revenue generator, its diversification into automotive and IoT markets has proven to be highly successful. Automotive revenue reached $961 million in Q1 FY25, growing by 61% year-over-year, while IoT revenue surged by 36% to $1.5 billion. Qualcomm has set ambitious targets to generate $22 billion in non-handset revenues by 2029, with automotive contributing $8 billion and IoT contributing $14 billion. This diversification not only helps Qualcomm reduce its dependence on handset sales but also opens up significant growth avenues in industries poised for long-term growth, particularly as AI and connected devices gain traction in various markets.
Moreover, Qualcomm’s Snapdragon X Series platform, now being adopted by leading PC manufacturers like Acer, ASUS, and Dell, shows promise in expanding Qualcomm’s footprint in the computing space. The company is targeting $4 billion in revenue from Windows PCs by 2029, capturing around 12% of the market.
Impact of Apple’s In-House Modem and Risks Ahead
Despite Qualcomm’s strong performance and diversified growth strategy, it faces significant risks. The most notable of these is the growing threat posed by Apple’s decision to develop its own 5G modem. Apple’s in-house modem is expected to be used in the iPhone 16e and could eventually reduce Qualcomm’s market share in the modem business. Apple is estimated to contribute around 20% of Qualcomm’s total revenue, so losing this major customer could result in approximately $7.8 billion in lost revenue, creating a substantial headwind for Qualcomm.
Although Qualcomm and Apple have contracts in place until 2026, the uncertainty surrounding their future relationship poses a risk to Qualcomm’s long-term earnings. However, Qualcomm’s efforts to expand into automotive, IoT, and PC markets, coupled with the launch of the X85 modem, should help mitigate the potential revenue loss from Apple.
Share Buybacks and Strong Cash Flow
Qualcomm continues to prioritize shareholder returns, evidenced by its aggressive share buyback program. In Q1 FY25, Qualcomm repurchased $1.8 billion worth of shares, reducing the outstanding share count by 11 million. Over the past decade, Qualcomm has reduced its shares outstanding by nearly 3.9% annually, which has contributed to boosting its earnings per share (EPS). This buyback program, combined with Qualcomm’s strong free cash flow of $12.7 billion over the past 12 months, positions the company well to continue rewarding shareholders while maintaining a solid balance sheet.
Valuation: Qualcomm's Intrinsic Value Suggests Undervaluation
When examining Qualcomm’s valuation, the company appears to be trading at an attractive price relative to its future growth potential. With a price-to-earnings (P/E) ratio of 16.7 and a price-to-free-cash-flow ratio of 13.9, Qualcomm is priced below its historical averages. Based on a discounted cash flow (DCF) analysis, Qualcomm’s intrinsic value is estimated to be $216.07 per share, suggesting that the stock is undervalued at its current price of $240 per share. This, combined with the company’s strong growth prospects in automotive, IoT, and AI, presents a compelling investment opportunity for long-term investors.
Key Risks and the Path Forward for Qualcomm
While Qualcomm’s diversified growth strategy, strong financials, and the launch of the X85 modem position the company for success, there are still risks to consider. The potential loss of Apple as a customer could weigh heavily on Qualcomm’s revenue in the coming years. Additionally, the company’s reliance on high-growth markets such as automotive and IoT could face challenges in a downturn, as these sectors are still evolving.
Despite these risks, Qualcomm’s strong cash flow, share buybacks, and leadership in 5G and AI technologies make it a solid buy for investors with a long-term horizon. As the company continues to innovate with products like the X85 modem and expand into new markets, its valuation is likely to improve, making it an attractive investment at current levels.
Conclusion: Buy Qualcomm (NASDAQ:QCOM) for Long-Term Growth
In conclusion, Qualcomm is a highly promising stock, trading at an attractive valuation given its growth potential in 5G, AI, automotive, and IoT. Despite risks like the potential loss of Apple as a customer, Qualcomm’s diversified revenue streams and strong market position in key technologies suggest that the stock is undervalued at $240 per share. With the X85 modem and continued expansion into high-growth markets, Qualcomm is well-positioned to deliver strong returns over the long term. Investors should consider buying Qualcomm (NASDAQ:QCOM) for a well-rounded exposure to some of the most promising sectors in technology today.
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