Executive Summary / Key Takeaways

• Qualcomm is successfully executing a strategic transformation from a mobile-centric company to a connected computing leader, driving significant growth in Automotive, IoT, and PC segments, which are expected to be major revenue contributors by fiscal 2029.
• The company's differentiated technology, particularly its high-performance, low-power Snapdragon platforms with integrated AI capabilities (Oryon CPU, Hexagon NPU), provides a competitive edge across target markets and is central to capturing the growing opportunity in on-device AI.
• Recent financial performance, including 17% revenue growth and 21% non-GAAP EPS growth in the first half of fiscal 2025, demonstrates the early success of diversification efforts, with Automotive and IoT revenues showing particularly strong year-over-year increases.
• Qualcomm maintains a robust licensing business (QTL) supported by long-term agreements, providing stable, high-margin revenue and strong cash flow generation, which is further enhanced by a commitment to return 100% of free cash flow to stockholders in fiscal 2025.
• Key risks include customer concentration, particularly the expected decline in modem share with a major handset customer, geopolitical tensions impacting the China market and supply chain, and intense competition, necessitating continued investment and successful execution in new markets.

Qualcomm's Strategic Evolution: From Wireless IP to Edge AI Dominance

Qualcomm Incorporated, historically a foundational force in wireless communication through its pioneering CDMA and OFDMA technologies and extensive patent portfolio, is undergoing a significant strategic evolution. The company is actively transforming into a connected computing powerhouse for the age of artificial intelligence, extending its technological leadership beyond its traditional mobile handset stronghold into burgeoning markets like automotive, the Internet of Things (IoT), and personal computing. This pivot is not merely an expansion but a fundamental reorientation aimed at leveraging Qualcomm's core strengths in high-performance, low-power processing, and pervasive connectivity to capture new growth vectors in an increasingly intelligent and connected world.

The company operates primarily through two segments: Qualcomm CDMA Technologies (QCT), its semiconductor business, and Qualcomm Technology Licensing (QTL), which manages its vast intellectual property portfolio. While QTL provides a stable, high-margin revenue stream derived from licensing its essential patents, QCT is the engine driving diversification, developing integrated circuits and software solutions for a widening array of devices and industries. This dual-engine model, rooted in decades of wireless innovation, provides a unique foundation for navigating the complex and competitive semiconductor landscape.

The Snapdragon Advantage: Powering Intelligence at the Edge

At the heart of Qualcomm's strategy lies its differentiated technology, embodied by the Snapdragon platform. This integrated approach combines advanced CPUs, GPUs, modems, and specialized processors like the Hexagon NPU for AI acceleration, optimized for performance and power efficiency at the device edge. The introduction of the second-generation custom Oryon CPU in the Snapdragon 8 Elite platform marks a significant leap, offering up to 30% faster performance with 57% less power compared to its predecessor. The accompanying Hexagon NPU delivers a 45% improvement in both performance and power efficiency for AI workloads.

These technological advancements translate into tangible benefits across markets. In mobile, the Snapdragon 8 Elite powers premium Android devices, enabling sophisticated on-device AI experiences and driving content increases. For PCs, Snapdragon X series platforms, featuring the Oryon CPU with up to 3GHz cores and powerful NPUs, are designed to deliver multi-day battery life and robust AI capabilities, positioning Qualcomm to capture share in the Windows ecosystem, including the growing Copilot+ PC category. In automotive, the Snapdragon Digital Chassis leverages the custom Oryon CPU (designed for 3x faster performance) and a dedicated Hexagon NPU with up to 12x increased AI performance for advanced digital cockpits and ADAS/AD systems. For industrial IoT and edge networking, platforms like the Qualcomm IQ Series (up to 100 TOPS AI performance) and the Dragon Wing FWA Gen 4 Elite (up to 40 TOPS AI performance) enable complex AI processing directly on devices, enhancing efficiency, security, and real-time decision-making. This focus on integrated, power-efficient edge AI processing is a critical differentiator against competitors often focused on cloud-centric or less integrated solutions.

Diversification Gaining Momentum: Automotive, IoT, and PC Growth

Qualcomm's strategic pivot is yielding tangible results, particularly in its target diversification markets.

The Automotive segment continues its strong trajectory, driven by increasing design wins and content per vehicle. In the second quarter of fiscal 2025, Automotive revenues reached $959 million, representing a robust 59% year-over-year growth. The company secured 30 new automotive designs in the quarter, including ADAS programs, and saw 14 commercial vehicle launches featuring its platforms. Qualcomm remains on track to achieve its ambitious target of $8 billion in Automotive revenues by fiscal 2029, fueled by the transition to software-defined vehicles and the increasing integration of AI in the cabin and for assisted driving.

The IoT segment also demonstrated significant strength, with revenues of $1.6 billion in Q2 FY25, a 27% increase year-over-year. This growth was broad-based across consumer, edge networking, and industrial applications, reflecting demand for Qualcomm's connectivity, processing, and AI technologies. The industrial sector, in particular, is seen as a major opportunity, benefiting from the transition to more advanced computing and AI at the edge. Strategic acquisitions like Edge Impulse and FocusAI are enhancing Qualcomm's software platform capabilities to address this market, supporting the target of $4 billion in industrial IoT revenues by fiscal 2029. The XR market, while smaller, is also showing promise, with smart glasses gaining traction as AI enables new use cases, contributing to the $2 billion XR revenue target by fiscal 2029.

The PC market represents another significant diversification opportunity. Following the launch of Snapdragon X series platforms, Qualcomm is gaining design win momentum, targeting over 100 designs by 2026. Early traction is encouraging, with Snapdragon-based PCs holding approximately 9% share of Windows laptops above the $600 price tier in U.S. retail and top five European countries in the first calendar quarter of 2025. The company is expanding its product portfolio to address lower price points while maintaining AI performance, aiming for $4 billion in PC revenues by fiscal 2029 and forecasting that at least 50% of PCs will be AI capable by 2027.

Core Business Resilience and Financial Strength

While diversification is a key growth driver, Qualcomm's core businesses remain critical to its financial health. The QCT Handset segment, despite facing market fluctuations and competitive pressures, continues to benefit from the strength of the premium Android tier. In Q2 FY25, Handset revenues grew 12% year-over-year to $6.9 billion, driven by increased premium tier shipments and higher revenue per chipset, benefiting from demand for premium-tier Snapdragon platforms. The Snapdragon 8 Elite has seen strong design traction globally, including with major Android OEMs and powering the Samsung Galaxy S25 series worldwide.

The QTL licensing business provides a stable, high-margin foundation. QTL revenues were $1.3 billion in Q2 FY25, approximately flat year-over-year. The segment benefits from long-term license agreements with key OEMs, with recent renewals and new agreements, including comprehensive 4G and 5G licenses with Transsion, positioning QTL to maintain its fiscal 2024 revenue scale going forward. While the expiration of the Huawei license impacts current revenue, ongoing discussions could present future upside not currently included in guidance.

Financially, Qualcomm delivered strong results in the first half of fiscal 2025, with total revenues of $22.6 billion (GAAP) and operating income of $6.7 billion (GAAP), representing year-over-year growth of 17% and 27% respectively. Non-GAAP EPS grew 21% year-over-year in the first half.

The company maintains a solid balance sheet with $13.8 billion in cash, cash equivalents, and marketable securities at March 30, 2025. Net cash provided by operating activities was $7.1 billion in the first six months of fiscal 2025. Qualcomm is committed to returning capital to stockholders, increasing its target to 100% of free cash flow in fiscal 2025 and increasing its quarterly dividend to $0.89 per share.

Competitive Dynamics and Strategic Positioning

Qualcomm operates in a highly competitive semiconductor industry characterized by rapid technological change and intense rivalry. Key competitors include Broadcom (AVGO), Intel (INTC), NVIDIA (NVDA), and its foundry partner TSMC (TSM), as well as customers like Apple (AAPL) and Samsung (SSNLF) who develop in-house chip capabilities.

Qualcomm's primary competitive advantage lies in its integrated platform approach and extensive IP portfolio, particularly in wireless and increasingly in edge AI. While competitors like NVIDIA lead in high-end data center AI GPUs (with significantly higher growth and margins), Qualcomm focuses on optimizing AI for power-constrained edge devices, a distinct market segment. Intel, a dominant player in PC CPUs, faces challenges in profitability and growth compared to Qualcomm, which is leveraging its ARM-based designs and AI capabilities to gain traction in the PC market. Broadcom competes in connectivity and infrastructure, but Qualcomm's deep wireless IP provides a differentiated moat in mobile and related edge devices. TSMC, as a foundry partner, is crucial to Qualcomm's fabless model but also competes in chip design through its customers.

The risk of customer vertical integration, notably Apple's development of its own modem, poses a significant challenge. Qualcomm expects its share in Apple devices to decline to approximately 70% in the fall 2025 launch and potentially lower thereafter, which will negatively impact QCT revenues. However, Qualcomm is countering this by strengthening its relationships with Android OEMs, expanding its premium-tier share, and accelerating diversification into Automotive, IoT, and PC markets, aiming for these new areas to collectively offset the potential revenue loss. Geopolitical tensions, particularly between the U.S. and China, also present risks, impacting supply chains and market access, necessitating a diversified global strategy.

Outlook and Key Considerations

For the third fiscal quarter of 2025, Qualcomm forecasts revenues between $9.9 billion and $10.7 billion and non-GAAP EPS between $2.60 and $2.80. This guidance reflects expected year-over-year revenue growth of approximately 12% at the midpoint for QCT, driven by continued strength in Handsets (up ~10% YoY), IoT (up ~15% YoY), and Automotive (up ~20% YoY). QTL revenues are expected to be approximately flat year-over-year.

The outlook is underpinned by the continued execution of the diversification strategy, the strength of the Snapdragon platform in premium Android and emerging markets, and disciplined operational management. However, investors must consider the inherent cyclicality of the semiconductor industry, the potential impact of macroeconomic uncertainty, the ongoing competitive pressures, and the risks associated with customer concentration and geopolitical factors. The success of the diversification strategy in offsetting potential declines in the traditional mobile business, particularly the impact of Apple's modem transition, remains a critical factor to watch.

Conclusion

Qualcomm stands at a pivotal juncture, successfully leveraging its foundational wireless technology and IP strength to pivot towards the expansive opportunities presented by connected computing and edge AI. The strong performance in the first half of fiscal 2025, particularly the significant growth in Automotive and IoT, provides compelling evidence that the diversification strategy is gaining traction and beginning to contribute meaningfully to the top line. While challenges such as customer concentration and intense competition persist, Qualcomm's differentiated technology roadmap, disciplined financial management, and commitment to capital return position it to capitalize on the secular trends in AI, 5G, and digitization across multiple industries. The investment thesis hinges on the continued successful execution of this strategic transformation, demonstrating that Snapdragon's power at the edge can fuel sustainable growth and create value beyond its traditional mobile core.