This Chipmaker Won't Live and Die by a Single Customer

Qualcomm (QCOM) posted strong earnings for the first quarter of 2025...

The chipmaker reported a record $11.7 billion in revenue last month. This marked a 17% year-over-year rise, which blasted expectations.

Yet, the stock didn't soar. Investors pushed it down more than 4.5% in after-hours trading.

The reason for that comes down to one of Qualcomm's biggest customers... technology giant Apple (AAPL).

For years, Qualcomm has been Apple's go-to supplier for 5G modems. But that deal ends in 2026, as Apple shifts to in-house chip design.

To Wall Street, this is a major blow, casting doubt on Qualcomm's long-term growth.

However, there's more to the story... including the role of artificial intelligence ("AI") in the company's future. By focusing on Qualcomm's impending loss, investors risk missing the bigger picture.

Today, we'll explain why the chipmaker's fate isn't tied to a single customer, even a global dominator like Apple. In fact, one big AI innovation could push its profitability well beyond market expectations.

Qualcomm is quietly capitalizing on one of the biggest tech trends...

We're talking about "Edge AI"... It's the AI that runs directly on local devices rather than traditional cloud servers.

Recent breakthroughs, like China's DeepSeek model and Meta Platforms' (META) lightweight Llama models, demonstrate AI's efficiency... They can run on devices without a constant Internet connection.

This is a game changer for smartphones, personal computers, and even automotive applications – the areas that Qualcomm dominates.

The company's Snapdragon 8 Elite chips, for example, power Samsung's latest AI-driven Galaxy S25 smartphone.

Qualcomm is expanding its footprint in automotive computing, too. Its chips are now powering the latest cockpit interfaces, giving people more control over their cars.

The company's position as a top supplier of on-device AI chips gives it a huge head start in this tech space.

Despite all these tailwinds, investors are underestimating the company's valuation...

We can see this through our Embedded Expectations Analysis ("EEA") framework...

The EEA starts by looking at a company's current stock price. From there, we can calculate what the market expects from future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

Due to the cyclical nature of the semiconductor industry, Qualcomm's Uniform return on assets ("ROA") has fluctuated... In the past five years, it has bounced between 18% and 47% – well above the 12% corporate average.

Analysts are expecting its Uniform ROA to expand to 21% over the next two years.

However, investors expect the company's profitability to plummet to 15%... That's less than Qualcomm's lowest Uniform ROA levels. Take a look...

We don't think Qualcomm's profitability will fall that far... if at all.

As Edge AI takes off, that will likely offset the Apple loss, and then some...

We're not saying Apple's exit won't hurt Qualcomm. However, the company has been preparing for this transition for a while.

That's why analysts are projecting higher profitability for the chipmaker in 2025 and 2026.

Remember, Qualcomm is at the center of a major AI trend. And it stands to benefit significantly... despite what many investors expect.

While the market fixates on a single (albeit big) customer, investors who understand the Edge AI boom could spot a big opportunity ahead in Qualcomm.

Regards,

Joel Litman
March 13, 2025