Qualcomm (QCOM)

Wireless chipmaker Qualcomm (NASDAQ:QCOM) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 5% year on year to $12.25 billion. On the other hand, next quarter’s revenue guidance of $10.6 billion was less impressive, coming in 4.9% below analysts’ estimates. Its non-GAAP profit of $3.50 per share was 2.9% above analysts’ consensus estimates.

Company Overview

Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.

Qualcomms peers and competitors include AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Intel (NASDAQ:INTC), MediaTek (TWSE:2454), NXP Semiconductors NV (NASDAQ:NXPI), Nvidia (NASDAQ: NVDA), and Samsung (KOSI:005930).

Chips need to keep getting smaller in order to advance on Moore’s law, and that is proving increasingly more complicated and expensive to achieve with time. That has caused most digital chip makers to become “fabless” designers, rather than manufacturers, instead relying on contracted foundries like TSMC to manufacture their designs. This has benefitted the digital chip makers’ free cash flow margins, as exiting the manufacturing business has removed large cash expenses from their business models. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. Digital chips derive their processing power from the number of transistors that can be packed on an individual chip. In chip design, nanometers or “nm” refers to the length of a transistor gate – the smaller the gate the more processing power that can be packed into a given space. In 1965, Intel’s founder Gordon Moore famously predicted a doubling of transistors on a chip every two years. The concept, known as Moore’s Law, was based on his belief that the technology used to create semiconductors would improve continuously, allowing chips to become ever smaller and ever more powerful.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Qualcomm’s sales grew at a solid 12.5% compounded annual growth rate over the last five years. Its growth beat the average semiconductor company and shows its offerings resonate with customers, a helpful starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Qualcomm’s annualized revenue growth of 11% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Qualcomm grew its revenue by 5% year on year, and its $12.25 billion of revenue was in line with Wall Street’s estimates. Beyond meeting estimates, this marks 9 straight quarters of growth, showing that the current upcycle has had a good run - a typical upcycle usually lasts 8-10 quarters. Company management is currently guiding for a 2.2% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Qualcomm’s DIO came in at 109, which is 15 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Qualcomm’s gross margin is well ahead of its semiconductor peers, and its strong pricing power is an output of its differentiated, value-add products. As you can see below, it averaged an excellent 55.4% gross margin over the last two years. Said differently, roughly $55.45 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Qualcomm produced a 54.6% gross profit margin in Q4, marking a 1.2 percentage point decrease from 55.8% in the same quarter last year. Qualcomm’s full-year margin has also been trending down over the past 12 months, decreasing by 1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Qualcomm has been an efficient company over the last two years. It was one of the more profitable businesses in the semiconductor sector, boasting an average operating margin of 26.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Qualcomm’s operating margin decreased by 3.8 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Qualcomm generated an operating margin profit margin of 27.5%, down 3 percentage points year on year. Since Qualcomm’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Qualcomm’s EPS grew at a decent 17.7% compounded annual growth rate over the last five years, higher than its 12.5% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Qualcomm’s earnings quality to better understand the drivers of its performance. A five-year view shows that Qualcomm has repurchased its stock, shrinking its share count by 6.7%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q4, Qualcomm reported adjusted EPS of $3.50, up from $3.41 in the same quarter last year. This print beat analysts’ estimates by 2.9%. Over the next 12 months, Wall Street expects Qualcomm’s full-year EPS of $12.12 to shrink by 3.6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Qualcomm has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 30% over the last two years.

Taking a step back, we can see that Qualcomm’s margin expanded by 8.3 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Qualcomm’s free cash flow clocked in at $4.42 billion in Q4, equivalent to a 36% margin. This cash profitability was in line with the comparable period last year and above its two-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Qualcomm’s five-year average ROIC was 46%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We were impressed by Qualcomm’s strong improvement in inventory levels. We were also happy its adjusted operating income outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed. Zooming out, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 7.7% to $134.29 immediately after reporting.

Updated: February 4, 2026 at 4:37 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Qualcomm.

Qualcomm possesses a number of positive attributes. To kick things off, its revenue growth was solid over the last five years. And while Qualcomm’s projected EPS for the next year is lacking, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Qualcomm’s P/E ratio based on the next 12 months is 12.7x. Looking at the semiconductor space right now, Qualcomm trades at a compelling valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $187.69 on the company (compared to the current share price of $134.29), implying they see 39.6% upside in buying Qualcomm in the short term.