Snapdragon, 5G And AI Will Expand Automotive And IoT Opportunities

Key Takeaways

• Expansion into automotive and IoT, with strategic acquisitions, is poised to significantly boost revenue and margins by fiscal 2029.
  
• Deployment of advanced Snapdragon platforms for Android devices and PCs will enhance connectivity and support handset revenue growth.
  
• Global trade uncertainty and competitive pressures may strain QUALCOMM's revenue, with emerging market challenges and evolving AI landscape impacting margins and growth.

Catalysts

Engages in the development and commercialization of foundational technologies for the wireless industry worldwide.

• Expansion in non-handset revenues, such as automotive and IoT, with a goal of reaching $22 billion by fiscal 2029, expected to significantly impact revenue growth.
  
• Deployment of the x85 5G platform and Snapdragon 8 Elite in premium-tier Android devices, enhancing connectivity and AI capabilities, which should support revenue growth in the handset segment.
  
• Increasing adoption of Snapdragon-powered PCs, with more than 85 designs in production or development, aiming for $4 billion in revenues by 2029, likely impacting revenue and operating margins favorably.
  
• Continued growth in the automotive segment through SnapDragon digital chassis and new design wins expected to drive revenue up to $8 billion by fiscal 2029, supporting revenue growth and potentially expanding operating margins.
  
• Strategic acquisitions like Edge Impulse and Focus AI to enhance IoT capabilities and integration with AI, boosting industrial IoT revenues to $4 billion by fiscal 2029, positively impacting both revenue and net margins.

QUALCOMM Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QUALCOMM's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.0% today to 25.5% in 3 years time.
• Analysts expect earnings to reach $11.6 billion (and earnings per share of $10.58) by about May 2028, up from $11.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $12.9 billion in earnings, and the most bearish expecting $10.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, up from 13.9x today. This future PE is lower than the current PE for the US Semiconductor industry at 22.5x.
• Analysts expect the number of shares outstanding to decline by 1.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.44%, as per the Simply Wall St company report.

QUALCOMM Future Earnings Per Share Growth

Risks

• The global trade landscape, including potential tariffs, introduces uncertainty that could impact demand across QUALCOMM’s businesses, particularly affecting revenue projections.
  
• The handset units in emerging regions are experiencing lower sales, which could lead to flat licensing business revenue and affect net margins due to reduced scale benefits.
  
• The predicted decline in QUALCOMM's share at a major U.S. customer to approximately 70% in the upcoming launch could pressure revenues and earnings from this sector.
  
• The competitive landscape, particularly from MediaTek in the premium tier for China-based customers, could challenge QUALCOMM’s market position and impact revenue growth.
  
• The evolving AI landscape and the initial stages of AI use in mobile and PCs might not immediately translate to increased revenues, impacting net margins until third-party developers create compelling AI-driven applications at scale.

Valuation

• The analysts have a consensus price target of $176.864 for QUALCOMM based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $245.0, and the most bearish reporting a price target of just $140.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $45.4 billion, earnings will come to $11.6 billion, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of $139.9, the analyst price target of $176.86 is 20.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.