Qualcomm (QCOM): A Mispriced Gem in the Tech Landscape

The tech sector has been a rollercoaster in recent years, with investors fixating on near-term headwinds like macroeconomic pressures and regulatory risks. Yet, Qualcomm (QCOM) stands out as a company whose stock appears to be mispricing its long-term growth potential. Despite record revenues, robust expansion in high-growth segments like automotive and IoT, and strategic AI partnerships, Qualcomm's shares remain undervalued—presenting a compelling opportunity for investors willing to look past short-term noise.

The Fundamentals: Strength in Diversification

Qualcomm's second-quarter results for fiscal 2025 underscore its resilience. Revenue hit $10.8 billion, a 15% year-over-year increase, while non-GAAP EPS rose 21% to $2.85, both exceeding estimates. The standout performer? Automotive and IoT, which grew 59% and 27% YoY, respectively. These segments now account for nearly one-third of Qualcomm's total revenue, a testament to its successful pivot away from smartphone dependency.

The automotive boom is particularly striking. Qualcomm's Snapdragon Digital Chassis—used in everything from infotainment systems to autonomous driving—has secured 30 new design wins, including partnerships with Chinese automakers like NIO and Zeekr. Management projects automotive revenue to hit $8 billion by fiscal 2029, up from $1.5 billion in 2024. Meanwhile, IoT revenue is on track to reach $4 billion by 2029, fueled by industrial AI acquisitions like Edge Impulse and Focus AI.

The AI Tailwind: Qualcomm's Secret Weapon

Qualcomm's move into AI isn't just incremental—it's strategic. The launch of the X85 modem, the first AI-powered 5G chip, positions the company to dominate next-gen connectivity. This chip, capable of 12.5 Gbps speeds, isn't just for smartphones; it's designed for cars, PCs, and IoT devices, creating a “one-chip-fits-all” ecosystem. Pair this with AI-driven partnerships—such as collaborations with Palantir for industrial intelligence and Microsoft for cloud integration—and Qualcomm's AI play becomes a growth engine.

Moreover, Qualcomm's Snapdragon platforms are gaining traction in premium Android devices and XR (Extended Reality) headsets, with a $2 billion revenue target by 2029 in that space. The company is also leveraging its edge AI tools to serve industries like manufacturing and logistics, where predictive maintenance and asset tracking are critical.

Why the Market Is Mispricing Risks

Despite these positives, Qualcomm's stock has struggled. Shares fell 5.6% post-earnings to $140.15 (they've since rebounded to $173.92 as of June 19, 2025), reflecting investor skepticism about two perceived risks: Huawei royalties and Apple's chip independence.

1. Huawei: Overhyped Headwind?
   The unresolved dispute over unpaid royalties from Huawei has weighed on sentiment. Yet, even if Qualcomm never recovers these funds, the amount—around $1.3 billion annually—is dwarfed by its $44 billion market cap and $40 billion in cumulative free cash flow over the next five years. Meanwhile, Qualcomm's licensing arm (QTL) remains profitable, contributing $1.3 billion in Q2 revenue, and its global patent portfolio ensures ongoing licensing income.

2. Apple's Self-Sufficiency: A Niche Concern
   Apple's push to build its own modems—exemplified by its partnership with Intel—is often cited as a threat. However, Qualcomm's leadership in premium 5G technology and its diversified customer base (including Samsung, Oppo, and automotive players) insulates it from any single customer's actions. The X85 modem, for instance, is already in advanced testing with multiple OEMs, and its AI capabilities make it hard to replicate.

Valuation: A Discounted Growth Story

Qualcomm's valuation metrics scream undervalued. At a P/E of 14.59 and a forward P/E of 14.54, it trades at a discount to peers like NVIDIA (P/E ~28) and Intel (P/E ~19), despite its stronger balance sheet and cash flow. The PEG ratio of 2.01 may seem high, but it reflects expectations for 5% EPS growth—a number management aims to exceed as automotive and IoT scale.

Investors also overlook Qualcomm's dividend yield of 1.2% and its commitment to returning $2.7 billion to shareholders annually via buybacks. With a Piotroski Score of 9—indicating strong financial health—Qualcomm is a cash-rich company with minimal debt.

The Investment Thesis: Buy the Dip

The market's focus on near-term risks like Huawei and Apple is myopic. Qualcomm's diversified revenue streams, AI-driven innovation, and sector leadership in automotive/IoT position it to thrive in a post-pandemic economy. With $22 billion in non-handset revenue targeted by 2029, this is a company primed for multi-year growth.

At $173.92, Qualcomm is priced for stagnation, not growth. A target price of $220 (a 26% upside) is achievable if automotive/IoT meet their 2029 targets and P/E expands to 17x. Even a conservative $200 target would deliver strong returns.

Risks? Yes, but Manageable
- Macroeconomic slowdown: Could delay smartphone/IoT demand.
- Regulatory hurdles: Ongoing antitrust cases or trade restrictions.
- Supply chain disruptions: Though Qualcomm's global network mitigates this.

Final Call: A Buy with a 3-5 Year Horizon

Qualcomm's stock is a classic case of a market overestimating short-term risks while underappreciating structural growth. For investors with a long-term horizon, this is a rare opportunity to buy a FANG-caliber growth story at a value price. The automotive/IoT/AI trifecta is just getting started—and Qualcomm is driving it.

Investment recommendation: Accumulate QCOM on dips below $180 with a 12-18 month horizon.