RE: Qualcomm's Real Growth Story May Be Just Beginning12 Jul 2025 11:51
Continued....
Anyway, coming back to the core handset business, I see that the main narrative on the street about a "mature" smartphone market seems to miss the nuances of what's actually happening. As the CFO, Akash Palkhiwala, described at the conference I cited above, we're seeing a massive "mix shift up", meaning that consumers are now buying more capable and expensive devices (especially so in emerging markets). I think this so-called "premiumization trend" should play directly into Qualcomm's hands with its high-performance Snapdragon platforms, with their Snapdragon 8 Elite being the premier platform for flagship Android devices to date. At the same time, the trend of AI-powered smartphones in the next few years may completely change the game for Qualcomm's handset business because the whole transition to on-device AI should theoretically be a bullish driver for the average selling price during the replacement cycles. In phones, it's crystal clear, especially when you look at the maturity of AI today, the ability to have an assistant that does things for you, even for productivity, you see now more clarity on use cases being developed for smaller screens. When you have a smaller screen, some of those systems are incredibly useful for you. And where we are in the cycle right now, it's kind of similar to what we saw in the feature phone to smartphone transition. You're in the part of the cycle that most of the new features come from the OEM and from the OS provider on AI, and then eventually they're going to start coming from third-party developers, and that's where it gets scale. So we like the trend. It's driving more NPU content into the phone, it's driving ASP, and it's going to be a game about once this thing is deployed at scale with a number of new use cases about who can deliver more NPU performance without compromising battery life. And I think that's kind of most of our investment is in this area. We like everything we see. I think there's impatience, people expect everybody to buy an AI smartphone by tomorrow, but the trend is good, and again, measured by the number of use cases, where the beginning of third-party developers building use cases. Source: QCOM's earnings Q2 FY2025 call, Cristiano Amon's comments.
Again, according to different studies, the TAM of the newly discovered end market may be massive. At the same time, with all the above prospects, I see little bullishness in Wall Street's consensus expectations for the next 5 years (CAGR = 4.71%): And that's likely why QCOM is now valued at only ~10.4x EV/EBITDA ratio on a forward basis, while its 10-year average multiple is currently ~38% above that FWD multiple (YCharts data says the market waits for basically zero growth in EBITDA over the next 2-3 years): If Qualcomm's EBITDA grows by just 5% YoY next year, and the stock trades at EV/EBITDA of only 12x (close to the TTM figure), the implied enterprise value should be close to $210.168 billion.
Sign In
Follow the stocks
