Nvidia‘s (NASDAQ: NVDA) stock became the world’s leading chipmaker over the past five years, with a 1,750% stock price surge taking its market cap to $1.8 trillion. Qualcomm (NASDAQ: QCOM), which was once more valuable than Nvidia, now lags at a market cap of only $174 billion.
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Qualcomm, once a mobile chipmaking powerhouse, now finds itself heavily reliant on the fluctuating strengths of smartphone sales. Comparatively, Nvidia extended beyond its core gaming GPU business and capitalized on the AI market’s explosive growth, anchoring its rise to the top.
Can Qualcomm engineer a powerful resurgence and become a thrilling growth stock again, or will it evolve into a slower-growth chipmaker, akin to an investment that prioritizes stability and income, much like Texas Instruments?
Decoding Qualcomm’s Business Landscape
Qualcomm manufactures mobile system on chips (SoCs) that merge CPUs and GPUs for various mobile devices. It also supplies stand-alone baseband modems to smartphone manufacturers, including Apple (NASDAQ: AAPL). Similar to Nvidia, Qualcomm is a fabless chipmaker that delegates its production to third-party foundries.
Previously a top mobile SoC maker, Qualcomm surrendered its throne to Taiwan’s MediaTek in the last three years. Notably, key smartphone manufacturers like Apple, Samsung, and Huawei ventured into developing their own in-house mobile SoCs.
Amid these threats and the cyclical nature of the smartphone market, Qualcomm expanded into crafting chips for the automotive and Internet of Things (IoT) sectors. In the latest fiscal year, 85% of its revenue stemmed from chipmaking, with handset chips accounting for 74% of that total. The remaining 15% was derived from its licensing division, leveraging wireless patents to secure a percentage of every smartphone sold globally.
Overcoming Hurdles: A Road Ahead for Qualcomm
In the face of pandemic disruptions during fiscal 2020, Qualcomm saw only a 12% rise in revenue. However, fiscal 2021 and fiscal 2022 marked a 55% and 32% increase, respectively, as the semiconductor sector recovered and new 5G handsets entered the market. Nevertheless, fiscal 2023 witnessed a 19% revenue drop as the 5G upgrade cycle concluded, macroeconomic headwinds curtailed new handset sales, and MediaTek outpaced Qualcomm in the low-to-mid-range market.
Plagued by these challenges, analysts anticipate a 6% revenue uptick in fiscal 2024 and an 8% rise in fiscal 2025. Even so, hazards loom on the horizon. By the latter half of the decade, Apple, a major source of Qualcomm’s revenue, could potentially supplant the chipmaker’s baseband modems with its own proprietary models. As Qualcomm contends with competition, smartphone market commoditization, and gradual IoT and automotive chip growth, its future expansion is likely to pale in comparison to Nvidia’s meteoric rise.
Qualcomm’s Growth Trajectory: A Reality Check
Qualcomm’s stock appears affordable at 16 times forward earnings and a 2.1% forward yield. However, the company seems poised to mirror Texas Instruments’ steady growth trajectory, rather than emulating Nvidia’s astronomic ascent. While Qualcomm remains a sound long-term investment, persistent challenges and uncharted catalysts might prohibit its ascent to a trillion-dollar semiconductor behemoth like Nvidia.
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Leo Sun holds positions in Apple and Qualcomm. The Motley Fool has positions in and recommends Apple, Nvidia, Qualcomm, and Texas Instruments. The Motley Fool maintains a disclosure policy.
The perspectives and opinions expressed herein belong to the author and do not necessarily align with those of Nasdaq, Inc.