AI, IoT And Data Center Expansion Will Unlock Future Upside

Key Takeaways

• Diversification into AI devices, automotive, and industrial IoT is set to drive higher margins and reduce dependence on individual customers.
  
• Strategic expansion in data centers and next-gen connectivity broadens Qualcomm's addressable market and supports long-term sustainable growth.
  
• Rising competition, geopolitical risks, unproven diversification, regulatory pressures, and reliance on volatile smartphone markets threaten QUALCOMM's revenue, margins, and long-term earnings stability.

Catalysts

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

• Expanding adoption of AI-powered devices-including smartphones, XR wearables, smart glasses, and emerging personal AI products-should fuel higher average selling prices, increased unit demand, and ongoing upgrade cycles, positively impacting Qualcomm's future revenue and supporting gross margin expansion.
  
• Rapid growth in automotive and industrial IoT segments, supported by strong design win momentum and a robust multi-year pipeline (with a combined $22 billion revenue target by 2029), is set to diversify Qualcomm's revenue base and drive margin-accretive growth as these businesses become a larger share of total earnings.
  
• Successful execution of multi-year agreements with global OEMs (e.g., expanded Xiaomi partnership, strong Samsung baseline share), along with deepening relationships in key international markets, increases revenue visibility and reduces customer concentration risk, supporting steadier long-term top-line growth.
  
• Strategic entry into the data center accelerated by the Alphawave acquisition positions Qualcomm to capture new high-growth markets as AI inference and edge workloads scale, with potential material revenue contribution starting FY28; this catalyst can drive both revenue and high-margin licensing streams.
  
• Proliferation of 5G, Wi-Fi 7, and next-gen connectivity across devices and industries continues to grow device complexity and connectivity requirements, bolstering Qualcomm's addressable market and providing a structural tailwind to revenue-per-device and ecosystem-wide earnings.

QUALCOMM Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QUALCOMM's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.8% today to 26.1% in 3 years time.
• Analysts expect earnings to reach $12.2 billion (and earnings per share of $11.24) by about September 2028, up from $11.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $10.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.3x on those 2028 earnings, up from 14.6x 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 2.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.42%, as per the Simply Wall St company report.

QUALCOMM Future Earnings Per Share Growth

Risks

• Escalating competition from major OEMs such as Apple and Samsung developing in-house chips, as well as local players in China, threatens QUALCOMM's mobile chipset market share, risking lower revenues and margin compression.
  
• Ongoing global trade volatility and geopolitical tensions, especially U.S.-China dynamics and tech sovereignty initiatives, may disrupt supply chains and shrink QUALCOMM's addressable market in key international regions, negatively impacting long-term revenue growth.
  
• The company's ambitious diversification initiatives into data centers and AI acceleration are in early, unproven phases and depend heavily on successful customer engagements and large design wins; delays, integration challenges (including Alphawave acquisition), or failure to capture significant share could result in higher R&D expenses without corresponding revenue growth, hurting net earnings and margins.
  
• Heavy legal and regulatory scrutiny remains a persistent risk, especially regarding QUALCOMM's patent licensing business model, which could result in lower royalty revenues and a structurally lower operating margin if adverse rulings or settlements occur.
  
• The reduction of Apple-related revenues and QUALCOMM's continued reliance on cyclical segments like smartphones expose the company to secular stagnation in handset sales, increasing volatility and threatening the sustainability of both revenue and net income over the long term.

Valuation

• The analysts have a consensus price target of $177.715 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 $225.0, 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 $46.9 billion, earnings will come to $12.2 billion, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 10.4%.
• Given the current share price of $157.28, the analyst price target of $177.71 is 11.5% 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.