Snapdragon Platform Expansion Into AI And Automotive Will Strengthen Future Market Position

Key Takeaways

• Expansion in AI-enabled edge computing and Snapdragon platform innovations positions Qualcomm for revenue growth in diverse tech markets.
  
• Diversification in automotive and IoT sectors, with advanced solutions, can enhance revenues and margins through increased market reach and efficiency.
  
• Qualcomm's diversification into IoT, automotive, and other segments faces risks from legal disputes, market adoption challenges, and dependency on major customer relationships.

Catalysts

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

• Qualcomm's expansion into AI-enabled edge computing, including partnerships with Meta and Amazon, positions it to benefit from increased demand for on-device AI capabilities, which could drive revenue growth as these markets expand.
  
• The launch of the Snapdragon 8 Elite platform, boasting significant performance and power efficiency improvements, is expected to boost Qualcomm's handset revenues and ASPs, particularly with major OEMs planning launches, impacting both revenue and earnings.
  
• Qualcomm's diversification strategy in automotive with Snapdragon Cockpit Elite and Ride Elite platforms, offering advanced digital cockpit and ADAS capabilities, could significantly increase automotive revenue and enhance margins.
  
• The continued success and expansion of the Snapdragon X Series in the PC market, including the new Snapdragon X Plus 8-core platform, broadens Qualcomm's addressable market and is poised to drive further revenue growth as more OEMs adopt these solutions.
  
• IoT business expansion, particularly through new industrial IoT solutions like the Qualcomm IQ Series, positions Qualcomm to capture growth within this sector, potentially enhancing both revenues and net margins through increased efficiency and value-added offerings.

QUALCOMM Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QUALCOMM's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.9% today to 26.5% in 3 years time.
• Analysts expect earnings to reach $12.5 billion (and earnings per share of $11.1) by about December 2027, up from $10.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $14.5 billion in earnings, and the most bearish expecting $10.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2027 earnings, up from 17.4x today. This future PE is lower than the current PE for the US Semiconductor industry at 31.9x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.18%, as per the Simply Wall St company report.

QUALCOMM Future Earnings Per Share Growth

Risks

• Qualcomm's growth strategy heavily relies on the success of their diversification efforts into IoT, automotive, XR, and industrial applications, which could face obstacles or slower adoption rates, impacting future revenue and earnings growth.
  
• The ongoing ARM dispute presents legal risks, which, if not decided in Qualcomm's favor, could result in increased legal costs or potential impacts on the company's ability to license technology, affecting net margins and earnings.
  
• The success of Qualcomm's automotive strategy assumes continued traction and execution, particularly in a currently volatile auto market; any disruptions could affect revenue streams from this high-growth segment.
  
• The company's revenue growth projections are linked to the accelerated adoption of premium-tier Snapdragon processors and the uptake of AI capabilities; any market shifts that devalue premium solutions could impact revenue and margins.
  
• There are inherent risks in relying on major customer relationships; potential reductions in orders or shifts to in-house solutions could result in a decline in revenue and operating margin if not offset by other segments.

Valuation

• The analysts have a consensus price target of $204.7 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 $270.0, and the most bearish reporting a price target of just $160.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $47.0 billion, earnings will come to $12.5 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 8.2%.
• Given the current share price of $157.92, the analyst's price target of $204.7 is 22.9% 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.