Qualcomm Incorporated (NASDAQ: QCOM)

The call

We're initiating on Qualcomm with a BUY and a $205 target.

QCOM trades at roughly 15–16x forward earnings — near the low end of its history and a deep discount to semiconductor peers — not because the business is failing, but because Apple is designing Qualcomm's modem out of the iPhone on a known, published timeline. That loss is real. It is also the most-telegraphed event in the sector, and the market is extrapolating it as if the rest of the company stands still.

The thesis rests on three legs. One: the replacement engine is already visible — automotive grew 38% to a record last quarter and is on track to a $6B+ run rate, and it roughly backfills the Apple modem revenue by itself. Two: you're paid a ~7.5% shareholder yield to wait, via a $20B buyback and a growing dividend. Three: the licensing business throws off high-margin cash that is largely independent of who wins any single chip socket.

I want to be straight about one thing up front: this is a more balanced setup than a typical high-conviction call. Risk/reward is about 1.2:1, not the 2:1 of the last report. What tilts it to a BUY is that you collect ~7.5% a year to hold through the trough, and the fiscal Q3 print on ~July 29 is the near-term test.

What the market is missing

The Apple loss is real, dated, and fully disclosed — which is exactly why it's priced

CEO Cristiano Amon has told analysts Qualcomm expects to supply modems for only around 20% of iPhones in 2026, and none at all by 2027, when the licensing agreement expires. Estimates put the lost modem revenue at roughly $5.7B–$5.9B a year, or $7.3B–$7.8B once you add RF and other content. That's a real hole. But it's also the single most-modeled event in the semiconductor sector — the company itself has publicly assumed near-zero Apple modem revenue by 2027, and at least eight brokers have downgraded the stock on it over the past year. When a risk is this well-telegraphed, the question isn't whether it's real, but whether it's over-priced.

The replacement engine isn't a promise — it's already in the results

In fiscal Q2 2026, automotive revenue grew 38% year over year to a record $1.33B, and Qualcomm crossed a $5B annualized automotive run rate for the first time, guiding to above $6B exiting fiscal 2026. IoT grew 9% to $1.73B. Put those next to the Apple modem revenue that's leaving, and automotive growth alone roughly backfills the loss over the next two to three years — before counting IoT, PCs, or the data-center effort. The market is treating a revenue rotation as a revenue cliff.

The buyback and dividend pay you to wait

In March 2026 the board authorized a new $20B repurchase program — about 11% of the entire market cap — on top of ~$2.1B still remaining from the prior authorization, and raised the dividend from $0.89 to $0.92. In fiscal 2025 the company returned $12.6B to shareholders ($8.8B of buybacks plus $3.8B of dividends). Between repurchases and the dividend, the shareholder yield is roughly 7.5%. That's the margin of safety in this call: even if the multiple goes nowhere, the capital return compounds the share count down while you wait for the diversification to prove itself.

Licensing is the quiet anchor

The QTL licensing segment generated $1.38B in Q2 at an EBT margin above 70%. That revenue arrives largely regardless of which company wins a specific chip design, and it's a big reason operating margins have held around 34% over the past year, well above the five-year average near 27%. It's one of the more durable, high-margin income streams in the entire industry, and it's not going anywhere when Apple's modem does.

The capital return engine

Qualcomm is a cash machine that happens to design chips. It generated $10.0B of operating cash flow in fiscal 2025 and returned more than that to shareholders — $12.6B — by leaning on a strong balance sheet ($13.7B cash against $15.2B debt). At roughly $170, the free-cash-flow yield is about 6.4%, against a ~4.1% median for the S&P 500.

A buyback that's bigger at a lower price

This is the part the Apple narrative obscures. A repurchase is an investment decision, and its return depends entirely on the price paid. The $20B authorization is being executed while the stock sits ~34% below its 52-week high. Every dollar spent at ~16x earnings retires far more earnings than the same dollar spent at the ~25x the stock has fetched in better moods. In fiscal 2025, Qualcomm repurchased 56 million shares; the buyback yield alone was recently around 5.4%, roughly 159% above its ten-year median.

The dividend: small yield, serious growth, easily covered

The $3.68 annualized dividend yields about 2.2% — modest on the surface, but it was just raised, it has a long record of increases, and it consumes only a fraction of free cash flow. A ~2% yield that grows, sitting on top of a ~5% buyback yield, is the definition of a shareholder-return compounder. The honest counterpoint: the company is returning more than 100% of free cash flow and carrying $15.2B of debt, so this pace relies on the cash flow continuing to show up. That's the thing to watch, and it's why the fiscal Q3 print matters.

The Apple debate, adjudicated

This is the whole argument. QCOM is down sharply from its highs almost entirely on the belief that losing Apple, plus a soft China smartphone market, breaks the earnings power. I take the bear case seriously — and conclude the market has priced a permanent impairment on the basis of a transition the company has been preparing for, and is visibly offsetting.

The conclusion. Qualcomm has spent five years telling investors Apple would leave and building the businesses to replace it. The market is now pricing the leaving and ignoring the building. The diversification into automotive, IoT, and edge AI isn't a someday story — it's in the quarterly results. I think ~16x forward earnings says the market doesn't yet believe them. I do.

Valuation and scenarios

I value QCOM on forward non-GAAP EPS. Fiscal 2025 non-GAAP EPS was $12.03 (GAAP was depressed by one-time items; fiscal Q2 2026 GAAP was inversely inflated by a one-time $5.7B tax benefit — I look through both and value on the adjusted number the business actually earns). Fiscal 2026 is a trough year on the China and Apple headwinds; I carry ~$10.85 for FY26E and ~$11.10 for FY27E as auto/IoT growth and the buyback offset the Apple loss.

Risk/reward is ~1.2:1 — base-case upside of ~$34 against bear-case downside of ~$29 from the $170.61 reference price. That's positive but modest, and more balanced than a high-conviction call. What tilts it to a BUY is the ~7.5% shareholder yield: you're paid to hold through the trough, and the expected value sits ~17% above spot even with a full quarter's weight on the bear case.

Catalysts

• Fiscal Q3 2026 earnings — on or about July 29 (days away). Consensus sits near $2.27 non-GAAP EPS on ~$9.85B revenue; guidance was $2.10–$2.30 on $9.2B–$10.0B. The swing factor is China: management called this quarter the bottom for China handset revenue. Confirmation of sequential recovery re-rates the stock more than the EPS line does.
• Automotive momentum. Q3 automotive guidance is for ~50% year-over-year growth, and commercial shipments of the next-generation Snapdragon Digital Chassis begin by fiscal year-end. Each print that confirms the $6B+ run rate validates the replacement-engine thesis.
• Data-center optionality. Custom silicon for a leading hyperscaler is expected to begin shipping this calendar year. It's not in the base case; any traction is upside, and it's the core of the bull (Benchmark's street-high $300 target rests on it).
• Continued buyback execution. $20B authorized with no expiration. Each quarter of repurchase shrinks the share count and lifts EPS independently of end-market demand.

Risks to the thesis

The bottom line

Qualcomm converts roughly a third of revenue into operating profit, generates $10B+ of operating cash flow, is retiring shares under a $20B authorization, just raised its dividend, and is growing automotive at ~38% into a record. It trades at ~16x forward earnings because the market has decided the loss of Apple's modem business is the whole story.

I think the replacement engine — auto, IoT, licensing, and optional data center — is being given almost no credit, and that ~16x prices permanent decline for a business that is rotating, not shrinking. You collect ~7.5% a year to wait, and the clock starts with the fiscal Q3 print on ~July 29.

Rating: BUY. 12-month target: $205. Risk/reward: ~1.2:1 — balanced, with the capital return as the cushion.

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Methodology, sources & disclosures

Methodology

Target price derived from a probability-weighted scenario analysis applying an exit multiple to fiscal 2027 estimated non-GAAP EPS. Base-case FY27E non-GAAP EPS of $11.10 reflects automotive and IoT growth plus buyback-driven share-count reduction offsetting the loss of Apple modem revenue, with a partial recovery in China handset demand. The 18.5× base exit multiple sits below the semiconductor peer group and above the current ~16×, reflecting partial — not full — repair of the Apple/China de-rating. Risk/reward of ~1.2:1 computed as base-case upside ($34.39) divided by bear-case downside ($28.61) from the $170.61 reference price. Shareholder yield computed as estimated fiscal 2026 buybacks plus dividends over the ~$179.8B market capitalization.

Primary sources

Qualcomm fiscal Q2 2026 earnings release and call transcript (April 29, 2026); fiscal Q4 / full-year 2025 results release (November 5, 2025); fiscal 2025 Form 10-K and interim Form 10-Q filings; the March 17, 2026 capital-return press release ($20B repurchase authorization; dividend raised to $0.92). Market data and consensus per S&P Global Market Intelligence, stockanalysis.com, Investing.com, Google Finance, and TipRanks (July 2026). Apple modem-transition estimates and analyst commentary referenced from Bloomberg, Bank of America, Mizuho, BNP Paribas, Benchmark, TD Cowen, Citi, and The Futurum Group. All figures reflect information available as of the July 16, 2026 close and are subject to revision; readers should verify current prices and any developments after that date, including the June 24, 2026 Investor Day and the pending fiscal Q3 report.

Disclosures

This report is published by 2 Comma Investor for educational and informational purposes only. It is not investment advice, and it is not a recommendation, offer, or solicitation to buy or sell any security. The author (@2commainvestor) is not a registered investment adviser, broker-dealer, or financial analyst, and no fiduciary relationship is created by reading this document.

Position disclosure: the author may hold, and may from time to time initiate or close, a position in the securities discussed. No compensation has been received from any company mentioned in exchange for this report. 2 Comma Investor has no investment banking, advisory, or business relationship with Qualcomm Incorporated.

Forward-looking statements — including estimates, targets, scenario weights and probability assessments — are opinions based on information believed reliable as of the publication date. They are not guarantees. Actual results will differ, potentially materially. Estimates and consensus figures are drawn from third-party sources that have not been independently verified. Past performance does not indicate future results. Investing in equities involves risk of loss, including total loss of principal. Read the full disclosures →