It is hard to call a company that earned $10.4 billion in revenue last quarter “overlooked,” yet Wall Street still treats Qualcomm like a one‑trick smartphone supplier.
After Q3 FY 2025 the shares closed at $159, down almost 20 % from their spring peak and now trade at roughly 13 times forward earnings and 6.8 % of free cash flow, both near the low end of large‑cap semiconductor peers.
What the Headlines Miss About Q3
The headline numbers looked fine: revenue up 10 % year over year to $10.37 billion and non‑GAAP EPS of $2.77 beat estimates. What spooked traders was a modest shortfall inside the handset chip division and the familiar drumbeat that Apple will keep replacing Qualcomm modems.
Dig one layer deeper and you find two bright spots that rarely make it into tweet‑length summaries.
First, the automotive and IoT businesses grew a combined 23 % year over year, setting a record quarter.
Second, management guided September‑quarter revenue above the top of the Street’s range on the back of early AI‑at‑the‑edge demand.
$45 Billion Auto Backlog Hiding in Plain Sight
Qualcomm’s Snapdragon Digital Chassis is already inside dashboards from General Motors, Mercedes‑Benz, Hyundai and Cadillac, yet investors still value the auto unit as a science experiment. The design‑win pipeline reached roughly $45 billion, about a quarter of Qualcomm’s current enterprise value, thanks to long‑dated infotainment, connectivity and ADAS contracts that stretch through 2030.
Because an automaker typically locks in silicon for a full model cycle, management can see years of revenue before it arrives. The company targets $4 billion in auto sales by FY 2026 and $8 billion by 2029, numbers that would make the segment bigger than today’s entire licensing division.
PCs Could Be the Surprise Swing Factor
Most investors still associate Windows‑on‑Arm with underpowered netbooks from a decade ago. This year’s Snapdragon X Elite chips changed that perception almost overnight, delivering up to 45 TOPS of on‑device AI and, importantly, battery life that embarrasses x86 notebooks.
More than 60 laptop designs are already on the 2025 road‑map, with entry models priced around $600, expanding the addressable market beyond premium ultrabooks.
If Qualcomm grabs even 10 % of the Windows notebook market by 2027, analysts at Moor Insights estimate annual PC revenue in the $5‑6 billion range—roughly the size of the company’s entire IoT segment today. None of the consensus models published this summer reflect that possibility.
Patents: The Cash Machine Everyone Ignores
Qualcomm’s licensing arm (QTL) once generated more than half of corporate profit; even after diversification it still runs at a 70‑plus % operating margin. Those fees look mundane because they arrive like clockwork, but they carry hidden strategic value. Royalty streams fund one of the industry’s largest R&D budgets, about 21 % of revenue last quarter, without diluting shareholders.
Critics point to looming 3G/4G patent expirations, yet the average selling price of a high‑end 5G handset has climbed above $500. Even if unit royalties eventually step down, the dollar value per phone holds steady because devices themselves command higher prices.
Qualcomm’s engineers have also moved up the stack into RF front‑end filters and millimeter‑wave modules, earning incremental content per device with every new generation.
Arm Litigation Clears a Cloud
One under‑reported catalyst arrived last winter when Arm withdrew its threat to cancel Qualcomm’s CPU licenses after a Delaware mistrial.
The détente removed the existential risk that would have grounded the Snapdragon X road‑map and forced a royalty reset.
With that cloud gone, laptop OEMs felt comfortable signing multi‑year supply agreements, enabling the design surge visible today.
Capital Returns and the Balance‑Sheet Story
During the first three quarters of FY 2025 Qualcomm generated $10 billion of operating cash flow and returned $9.2 billion through buybacks and dividends. The quarterly dividend was raised to $0.89 in March, giving the stock a 2.2 % yield, decent for tech and well covered at a 33 % payout ratio.
The balance sheet carries $12.3 billion in cash, restricted cash and marketable securities against $14.8 billion of debt, leaving modest net leverage of roughly one‑quarter‑turn EBITDA. Management continues to buy back shares aggressively; at today’s price the authorization still exceeds $15 billion, or almost 15 % of the float.
Why the Discount Persists
Skeptics still worry about three things: Apple’s modem in‑house push, cyclical Android handset demand and Chinese exposure. The first is real—Apple shipped its first C‑series modem in the entry‑level iPhone 16e this spring—but Qualcomm will still supply premium iPhones through at least 2026 under a contract signed in late 2023.
Meanwhile, Android flagship launches from Xiaomi, Samsung and Honor have quietly lifted non‑Apple chip sales more than 15 % this fiscal year, offsetting some of Apple’s erosion.
China remains a swing factor, yet Qualcomm holds de facto standard‑essential patents for 5G; local OEMs from Oppo to Vivo cannot ship high‑end phones without licensing them.
Putting the Numbers Together
At $159 the stock sells for about 13 × the midpoint of FY 2025 EPS estimates ($12.00) and 12 × free cash flow, a discount of 40‑50 % versus Nvidia, AMD and Broadcom.
Strip out cash and the forward multiple falls below 12. If management merely meets its 2029 targets for auto ($8 billion) and IoT ($14 billion), total revenue could approach $60 billion, nearly double today’s run‑rate, without assuming any smartphone recovery.
Using a conservative 17 × earnings multiple (the five‑year average) on a 2027 EPS power of $14 suggests a $238 valuation, about 50 % above current levels. That ignores the optionality of on‑device AI PCs, AR‑VR headsets and the newly announced Alphawave‑powered data‑center interconnect chips.
Is Qualcomm Stock Undervalued?
Qualcomm is priced like a melting‑ice‑cube handset supplier even as the business model mutates into a diversified, cash‑rich platform for edge AI, automotive and next‑generation PCs.
Investors willing to look beyond the Apple narrative will find a 2 % yield, an 11 % effective tax rate, aggressive buybacks and visible multi‑year growth pipelines that together argue the stock is meaningfully undervalued.
As the first Snapdragon‑powered Copilot‑Plus laptops hit store shelves and luxury car dashboards light up with Qualcomm silicon, that valuation gap looks poised to close.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.