Qualcomm (QCOM)

InvestableTimely Buy
Qualcomm is a sound business. Its high free cash flow margin and returns on capital show it can produce cash and invest it wisely. StockStory Analyst Team
Adam Hejl, Founder of StockStory
Max Juang, Equity Analyst

1. News

2. Summary

InvestableTimely Buy

Why Qualcomm Is Interesting

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.

  • Robust free cash flow profile gives it the flexibility to invest in growth initiatives or return capital to shareholders
  • Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
  • On the flip side, its projected sales growth of 2.2% for the next 12 months suggests sluggish demand
Qualcomm shows some promise. If you’re a believer, the valuation looks reasonable.
StockStory Analyst Team

Why Is Now The Time To Buy Qualcomm?

At $154.77 per share, Qualcomm trades at 13.1x forward P/E. Qualcomm’s valuation is lower than that of many in the semiconductor space. Even so, we think it is justified for the revenue growth characteristics.

It could be a good time to invest if you see something the market doesn’t.

3. Qualcomm (QCOM) Research Report: Q1 CY2025 Update

Wireless chipmaker Qualcomm (NASDAQ:QCOM) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 16.9% year on year to $10.98 billion. The company expects next quarter’s revenue to be around $10.3 billion, close to analysts’ estimates. Its non-GAAP profit of $2.85 per share was 1.2% above analysts’ consensus estimates.

Qualcomm (QCOM) Q1 CY2025 Highlights:

  • Revenue: $10.98 billion vs analyst estimates of $10.65 billion (16.9% year-on-year growth, 3.1% beat)
  • Adjusted EPS: $2.85 vs analyst estimates of $2.82 (1.2% beat)
  • Adjusted Operating Income: $3.69 billion vs analyst estimates of $3.65 billion (33.6% margin, 1.1% beat)
  • Revenue Guidance for Q2 CY2025 is $10.3 billion at the midpoint, slightly below what analysts were expecting
  • Adjusted EPS guidance for Q2 CY2025 is $2.70 at the midpoint, roughly in line with what analysts were expecting
  • Operating Margin: 28.4%, up from 24.9% in the same quarter last year
  • Free Cash Flow Margin: 21.3%, down from 35.9% in the same quarter last year
  • Inventory Days Outstanding: 114, up from 111 in the previous quarter
  • Market Capitalization: $161.3 billion

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.

Qualcomm has one of the more unique semiconductor business models. Its research has created the intellectual property that is the foundation for the global wireless industry. In the 1990s they developed the original code division multiple access (CDMA) technology that became the standard for cell phone networks first in the US, then around the world. Qualcomm has had a hand in developing Wi-Fi, GPS, and Bluetooth, along with RFID (Radio Frequency ID), and 4G and 5G technology.

It monetizes its portfolio of more than 140,000 patents through designing semiconductors used in handsets, autos, and IoT and also through licensing its patents for others to incorporate in their own products. Qualcomm outsources manufacturing of its chips, its main product family is the Snapdragon chip, an all in one chip used to power mobile devices: it includes a cellular modem, integrated Wi-Fi, Bluetooth, and GPS, along with a CPU (central processing unit) and GPU (graphics processing unit). Different versions of Snapdragon are used in different types of devices (tablets, laptops, handsets) based on the different battery life or processing requirements.

Qualcomm’s stranglehold on wireless’s foundational technology has enmeshed it in disputes over royalty payments, which are highly consequential to Qualcomm’s business model as it receives a royalty of roughly 5% of the average price of every smartphone sold, and those licensing revenues are nearly pure profit. In 2017, Apple refused to continue paying the royalty which degenerated into a lawsuit with Apple switching to Intel modem chips, only to return to Qualcomm in 2019, when Intel decided not to make 5G modems. Qualcomm also ran into similar disputes with Chinese handset makers such as Huawei in the past few years, all of which have since been resolved, with Qualcomm continuing to receive its royalty payments. Because of its unique position in the semiconductor world, Qualcomm became a geopolitical football during China-US trade tensions over the past few years: China blocked Qualcomm’s attempted acquisition of NXPI over antitrust concerns, while the US blocked Broadcom proposed hostile takeover of Qualcomm over national security concerns.

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).

4. Processors and Graphics Chips

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.

5. Sales Growth

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Qualcomm grew its sales at a solid 11.3% compounded annual growth rate. 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.

Qualcomm Quarterly Revenue

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 recent performance shows its demand has slowed as its annualized revenue growth of 1.5% over the last two years was below its five-year trend. Qualcomm Year-On-Year Revenue Growth

This quarter, Qualcomm reported year-on-year revenue growth of 16.9%, and its $10.98 billion of revenue exceeded Wall Street’s estimates by 3.1%. Beyond the beat, this marks 6 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 9.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector. At least the company is tracking well in other measures of financial health.

6. Product Demand & Outstanding Inventory

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 114, which is in line with its five-year average. These numbers show that despite the recent increase, there’s no indication of an unusual inventory buildup.

Qualcomm Inventory Days Outstanding

7. Gross Margin & Pricing Power

Gross profit margin is a key metric to track because it shows how much money a semiconductor company gets to keep after paying for its raw materials, manufacturing, and other input costs.

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 55.7% gross margin over the last two years. Said differently, roughly $55.74 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue. Qualcomm Trailing 12-Month Gross Margin

In Q1, Qualcomm produced a 55% gross profit margin, marking a 1.2 percentage point decrease from 56.3% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

8. Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

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 25.4%. 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 3.2 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.

Qualcomm Trailing 12-Month Operating Margin (GAAP)

This quarter, Qualcomm generated an operating profit margin of 28.4%, up 3.5 percentage points year on year. The increase was encouraging, and because its gross margin actually decreased, we can assume it was more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.

9. Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Qualcomm’s EPS grew at a remarkable 26.7% compounded annual growth rate over the last five years, higher than its 11.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Qualcomm Trailing 12-Month EPS (Non-GAAP)

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 3.1%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings. Qualcomm Diluted Shares Outstanding

In Q1, Qualcomm reported EPS at $2.85, up from $2.44 in the same quarter last year. This print beat analysts’ estimates by 1.2%. Over the next 12 months, Wall Street expects Qualcomm’s full-year EPS of $11.29 to grow 4.8%.

10. Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and 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 30.4% over the last two years.

Taking a step back, we can see that Qualcomm’s margin was unchanged over the last five years, showing its long-term free cash flow profile is stable.

Qualcomm Trailing 12-Month Free Cash Flow Margin

Qualcomm’s free cash flow clocked in at $2.34 billion in Q1, equivalent to a 21.3% margin. The company’s cash profitability regressed as it was 14.6 percentage points lower than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

11. Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Qualcomm’s five-year average ROIC was 52.8%, 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.

Qualcomm Trailing 12-Month Return On Invested Capital

12. Balance Sheet Assessment

Qualcomm reported $13.85 billion of cash and $14.62 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

Qualcomm Net Debt Position

With $16.28 billion of EBITDA over the last 12 months, we view Qualcomm’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $40 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

13. Key Takeaways from Qualcomm’s Q1 Results

It was encouraging to see Qualcomm beat analysts’ revenue expectations this quarter. We were also happy its EPS narrowly outperformed Wall Street’s estimates. On the other hand, its inventory levels increased and Q2 revenue guidance slightly missed, with the company implying that much is out of their control. Overall, this quarter was mixed. The stock traded down 5.3% to $140.29 immediately following the results.

14. Is Now The Time To Buy Qualcomm?

Updated: June 14, 2025 at 10:20 PM EDT

Before deciding whether to buy Qualcomm or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Qualcomm is a fine business. First off, its revenue growth was solid over the last five years. And while its declining operating margin shows the business has become less efficient, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. On top of that, its stellar ROIC suggests it has been a well-run company historically.

Qualcomm’s P/E ratio based on the next 12 months is 13.1x. When scanning the semiconductor space, Qualcomm trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $172.42 on the company (compared to the current share price of $154.77), implying they see 11.4% upside in buying Qualcomm in the short term.