Snapdragon's Edge AI And Automotive Expansion Will Fuel Future Opportunities

Key Takeaways

• Diversification in automotive and IoT, alongside AI adoption, positions Qualcomm for robust revenue and margin growth in non-handset markets.
  
• Snapdragon's strength in premium handsets and potential PC market expansion are key drivers of Qualcomm's content growth and market share increase.
  
• Reliance on key partnerships, competition, and geopolitical factors pose multiple risks to Qualcomm's revenue, margins, and overall financial stability.

Catalysts

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

• Qualcomm's diversification initiatives, particularly in automotive and IoT, are set to drive future growth. Automotive and IoT revenues grew 61% and 36% year-over-year, respectively, and Qualcomm aims to achieve non-handset revenues of $22 billion by 2029. This should positively impact revenue and earnings.
  
• The strong momentum of Snapdragon in premium-tier handsets, including design wins with Samsung and Chinese OEMs, is expected to continue driving growth in smartphone content and market share, thus impacting revenue and margins positively.
  
• The rapid adoption of edge AI and on-device inference, with Qualcomm's leadership in AI processors, positions the company well to benefit from this technological transition, potentially enhancing both revenue and net margins due to increased demand.
  
• Growth in the automotive sector, driven by collaborations with major automakers and Tier 1 suppliers using Snapdragon Digital Chassis, is expected to increase Qualcomm's content per vehicle, positively affecting revenue and earnings.
  
• Expansion in the PC market with Snapdragon X Series platforms, targeting over 100 designs by 2026, is expected to increase Qualcomm's PC market share and addressable opportunity, impacting revenue and margins favorably as higher performance products tend to have better margins.

QUALCOMM Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QUALCOMM's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.7% today to 26.5% in 3 years time.
• Analysts expect earnings to reach $12.2 billion (and earnings per share of $11.05) by about March 2028, up from $10.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $10.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, up from 17.0x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.1x.
• Analysts expect the number of shares outstanding to decline by 0.95% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.73%, as per the Simply Wall St company report.

QUALCOMM Future Earnings Per Share Growth

Risks

• Qualcomm's reliance on its partnerships with companies like Samsung and Google presents risks, as any shifts or disruptions in these relationships could significantly impact its handset revenue and overall earnings.
  
• The competitive landscape, particularly in the premium smartphone market with players like Apple and other Chinese OEMs, could pressure Qualcomm's market share and pricing, potentially affecting revenue growth and net margins.
  
• The company's forecasts do not currently account for potential Huawei settlement revenue, posing a risk to projected financial results if renewal negotiations do not progress favorably.
  
• Industry-wide factors such as potential tariffs or geopolitical tensions could disrupt Qualcomm’s supply chain or increase manufacturing costs, impacting gross margins and profitability.
  
• Qualcomm’s exposure to the volatile Chinese market, despite current growth in the premium segment, carries risks if economic or political conditions change, potentially affecting handset revenues and overall financial performance.

Valuation

• The analysts have a consensus price target of $198.997 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 $250.0, 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 2028, revenues will be $46.0 billion, earnings will come to $12.2 billion, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $161.22, the analyst price target of $199.0 is 19.0% 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.