Clock Cycle Reset
In this edition of the Smart Investor newsletter, we take a closer look at the stock of the global leader in wireless chips and smartphone processors. But first, let’s dive into the latest portfolio news and updates.
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Portfolio Updates
❖ Cisco Systems (CSCO) delivered strong FQ3 2025 results, with revenue and EPS easily sailing past analyst estimates and coming in above the high end of the company’s prior guidance. Revenue rose by 11% year-over-year, while adjusted EPS increased by 9%. Robust profitability was driven by productivity improvements and Splunk, Cisco’s security and observability business, which was acquired last year. On a non-GAAP basis, gross margin was 68.6%, product gross margin was 67.6%, and operating margin was 34.5%.
The strong results were driven by strength in AI, software subscriptions, and cloud networking – with total product orders up 20% YoY and growth across all geographies and customer markets. CSCO saw outstanding momentum in AI, with over $600 million in AI infrastructure orders from hyperscaler customers – bringing the year-to-date total to well over $1 billion and surpassing its internal FY25 target a full quarter early.
Cisco reported significant growth in software and recurring metrics: total software revenue surged 25%, while subscriptions reached 56% of total revenue in Q3, underscoring the company’s pivot toward recurring income streams.
The company raised revenue and EPS guidance for the full fiscal year, exceeding Street expectations. In addition to financial upgrades, it announced a major strategic move: it will serve as the founding networking and security partner for HUMAIN, Saudi Arabia’s newly launched AI enterprise. Furthermore, Cisco expects to significantly expand its relationship with the UAE’s G42 group, the firm leading the Stargate AI campus initiative, which is poised to become the largest AI data center outside of the United States.
❖ Beyond Cisco, several other companies are expected to significantly benefit from the Middle East artificial intelligence cooperation with the U.S., advanced by President Trump. Of course, these include Nvidia – whose chips are irreplaceable at any AI endeavor – as well as several other hardware, infrastructure, and cloud firms. In addition, Oracle (ORCL) is participating in the Stargate initiative as a key technology partner, providing its cloud infrastructure and AI-optimized computing platforms to support the development of the campus. The company is expected to power data management, training environments, and inference workloads across sectors. Oracle’s involvement aligns with its broader regional push to expand sovereign AI capabilities and deliver enterprise-grade AI services compliant with UAE data regulations.
❖ Salesforce (CRM) announced a $500 million commitment to AI-related initiatives in Saudi Arabia, positioning itself as a strategic partner in the Kingdom’s digital transformation. The investment includes the deployment of Hyperforce, Salesforce’s cloud infrastructure architecture designed to deliver secure, scalable services within local data residency frameworks. Additionally, Salesforce plans to expand the use of Agentforce – its generative AI platform for customer service automation – across key sectors including government, finance, and retail. This move supports Vision 2030 objectives by enhancing digital customer engagement, workforce productivity, and AI innovation within the Kingdom’s public and private sectors.
❖ Microsoft (MSFT) is also in the game. The cloud and software giant has invested $1.5 billion in the Emirati AI firm G42, acquiring a minority stake and a seat on its board of directors. This strategic partnership includes the deployment of Microsoft Azure cloud services to support G42’s AI initiatives. Additionally, Microsoft and G42 have announced plans to establish two AI research centers in Abu Dhabi as part of the broader collaboration between Microsoft and G42 to advance AI development and innovation in the UAE and beyond. Through this collaboration with G42, Microsoft will play an integral part in the UAE’s Stargate AI campus initiative.
❖ President Trump’s recent Middle East tour yielded substantial gains for U.S. aerospace and defense firms. In Qatar, a landmark $96 billion deal was signed between Qatar Airways and Boeing for up to 210 widebody aircraft, including 130 787 Dreamliners and 70 777X jets, all powered by GE Aerospace (GE) engines. This agreement marks the largest widebody and 787 order in Boeing’s history and represents GE’s most significant engine deal to date, encompassing over 400 GE9X and GEnx engines.
Simultaneously, the United Arab Emirates committed to a $14.5 billion purchase of 28 Boeing 787 and 777X aircraft for Etihad Airways, also equipped with GE engines.
In Saudi Arabia, a historic $142 billion defense agreement was finalized, encompassing advanced warfighting equipment and services from over a dozen U.S. defense contractors. The deal includes provisions for air and missile defense, maritime security, and communication systems, areas where Lockheed Martin (LMT), RTX (RTX), and Howmet Aerospace (HWM) have established capabilities. Thus, Lockheed is widely expected to benefit via future sales of missile defense systems (e.g., THAAD, PAC-3), aircraft upgrades, and command-and-control infrastructure. Meanwhile, HWM is expected to profit from the Saudi investment as a major supplier of aerospace components, particularly for jet engines and structural systems used by firms like Boeing, GE, and Raytheon.
Additionally, RTX’s Raytheon division secured a $1 billion contract with Qatar for counter-drone systems, marking Qatar as the first international customer for Raytheon’s Fixed Site–Low, Slow, Small Unmanned Aerial System Integrated Defeat System (FS-LSS C-UAS).
❖ Beyond the Middle East deals, RTX (RTX) has been awarded a $1 billion firm-fixed-price contract by the U.S. Missile Defense Agency to produce and deliver up to 55 SM-3 Block IB All-Up Rounds. The contract is noncompetitive and covers full lifecycle production, including manufacturing, assembly, and testing. Work will be carried out at RTX’s facilities in Arizona and Alabama, with a scheduled completion date of March 31, 2031. The SM-3 Block IB interceptor is a critical component of the Aegis Ballistic Missile Defense system.
This comes on top of several significant defense contracts awarded to RTX and its subsidiaries in recent weeks. Notably, Raytheon, an RTX business, secured a $580 million follow-on production contract from the U.S. Navy for the Next Generation Jammer Mid-Band (NGJ-MB) system. This system enhances electronic attack capabilities for the EA-18G Growler aircraft, with deliveries extending through 2028. These contracts underscore RTX’s strategic role in advancing U.S. and allied defense capabilities across multiple domains.
❖ Leidos (LDOS) is also actively participating in the recent surge of U.S.-Middle East defense cooperation. During President Trump’s May 2025 visit, Leidos secured a $350 million agreement with Saudi Arabia’s National Security Services Company (SAFE) at the U.S.-Saudi Investment Forum. While specific details of the contract remain undisclosed, the partnership aims to enhance Saudi Arabia’s security infrastructure and advanced services. Additionally, Leidos was awarded a $48.8 million contract by the U.S. Army to provide General Electronic Test Station (GETS) equipment and support. This contract encompasses work in multiple countries, including Saudi Arabia, the United Arab Emirates, Qatar, and Kuwait, and is expected to be completed by December 31, 2029.
❖ Alphabet’s (GOOGL) Google has now filed more generative AI-related patents than IBM (IBM), making it the new leader in this space, according to data from IFI Claims, a patent analytics firm. In addition to generative AI, Google also leads in agentic AI, an emerging field that involves AI systems capable of performing tasks autonomously over time, sometimes with minimal human oversight. Furthermore, in the broader U.S. rankings for generative AI patent filings, Google and Microsoft (MSFT) now top the list, surpassing IBM, which had historically been a dominant force in AI-related patents for decades. Today, Google and Microsoft’s IP portfolios are shaping up to be key competitive assets – not just for product leadership, but also for licensing, partnerships, and defensive legal positioning.
❖ However, IBM (IBM) is not giving up its leadership perch without a fight. The tech giant is mounting a renewed push to reclaim its leadership in AI innovation, unveiling a series of 2025 initiatives aimed at closing the patent gap with Google and Microsoft. In addition to the expansion of its enterprise-focused AI platform, Watsonx, IBM is also accelerating the adoption of its Granite foundation models, optimized for domain-specific workloads in industries such as finance, healthcare, and government. Moreover, as the competition increasingly shifts to agentic AI, IBM has intensified its efforts in this sphere with a focus on intelligent automation and AI agents capable of dynamic task execution across enterprise systems. Recent collaboration with MIT and the U.S. Department of Energy further underscores its ambition to lead in AI infrastructure and safety.
❖ JPMorgan Chase (JPM) held its annual Investor Day on May 19, delivering a message of stability, strategic ambition, and tech-driven efficiency that landed well with Wall Street. The bank reaffirmed its full-year financial targets, addressed macro risks, and showcased leadership in AI and digital infrastructure.
JPM is investing $18 billion in technology in 2025, with AI expected to drive significant productivity gains – including a potential 10% workforce reduction over five years. The bank aims to expand its U.S. consumer deposit share to 15%, grow credit card spending share to 20%, and double its mass-market wealth business, signaling aggressive growth despite its size and market command.
With $57 billion in excess capital, JPM highlighted flexibility for both defense and offense, including potential acquisitions. Financial targets were reaffirmed: net interest income (NII) guidance remains at $94.5 billion, expenses at $95 billion, and ROTCE at 17%, reinforcing confidence in profitability despite regulatory and economic headwinds.
The bank expects a decline in the mid-teens in Q2 for investment banking fees, but forecasts trading revenue to grow mid-to-high single digits. Credit card charge-off rates are expected to rise to 3.9% in 2026, but overall consumer and corporate health remains solid.
JPM’s long-standing CEO Jamie Dimon – known as “the best banker in the world” – did not provide new details on his retirement but confirmed that succession planning remains a board priority, with multiple executives in the spotlight.
The bank also announced it will allow clients to hold Bitcoin in their portfolios, though it will not offer custody services. While Dimon remains personally skeptical of cryptocurrencies, he acknowledged growing client demand for BTC and other digital assets.
The event drew multiple price-target upgrades and widespread praise. For example, TD Cowen called JPM “a number one company,” citing AI-led productivity as a future earnings catalyst. BofA applauded its “superior execution,” seeing JPM as a top play on secular growth in private credit, wealth management, payments, and AI-driven efficiency.
❖ At its I/O developer event, Alphabet’s (GOOGL) Google reaffirmed its push to lead in AI infrastructure and applications, highlighting rapid model progress, new developer tools, and deeper integration of AI across its products. A major focus was on the Gemini platform, which now powers a wide range of user-facing experiences. The company introduced Gemini 2.5 Pro with “Deep Think,” an enhanced reasoning mode allowing the model to consider multiple answers before responding. The new Gemini Ultra subscription tier includes access to Gemini 2.5 Pro, along with advanced AI features such as video editing tools.
Google also unveiled Veo 3, its latest video-generating model capable of producing clips with dialogue, sound effects, and environmental audio. Accompanying this, Flow, an AI-powered filmmaking tool, enables creators to build richer multimedia content. The company also previewed Google Beam, an experimental 3D video communication platform that uses AI and a multi-camera array to create immersive 3D conversations from standard 2D feeds.
On the consumer front, Google is rolling out AI Mode – a chat-like search interface powered by Gemini 2.5 – to all U.S. users, with AI Overviews now live in 200 countries. These upgrades aim to make search more interactive and personalized. Google also announced that Project Astra, DeepMind’s next-gen AI assistant, is headed to Android and iOS, offering real-time multimodal assistance across devices.
Other highlights included a new on-device AI model for private, efficient processing; updated AI Workspace and developer tools; a refreshed design language for Android; and a new operating system for wearables – all reinforcing Google’s end-to-end AI strategy. Paid AI features and premium tools signal the company’s intent to monetize high-end usage as the market matures.
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Portfolio Stocks Under Review
❖ We are removing RTX (RTX) from the “Under Review” list following the slate of positive developments detailed in the Portfolio News and Updates section above. The company has secured several lucrative contracts at home and abroad, while the reduced tariff concerns increases supply-chain manageability. Therefore, we are maintaining the position.
❖ We are keeping Charles Schwab Corporation (SCHW) under review, at least until its upcoming annual meeting on May 22, 2025. We have placed the stock in this bracket despite its blockbuster Q1 earnings report and praises from several Wall Street analysts.
An activist shareholder, John Chevedden, has recently submitted proposals advocating for the declassification of Schwab’s board structure, aiming to enhance shareholder influence over the company’s management and make the board more accountable to shareholders. The board has expressed opposition to these changes, but they are scheduled to be addressed in full at Charles Schwab’s annual shareholder meeting on May 22.
Schwab’s core business remains fundamentally sound, and we are bullish on its long-term viability. As a leading brokerage and financial services firm, Schwab has shown resilience through various market cycles, benefiting from a robust client base and a comprehensive suite of investment products. However, the internal dispute introduces additional company-specific uncertainty amid broad market volatility, driving our decision to keep SCHW under a magnifying glass at least for the next few days.
❖ We are keeping Verizon Communications (VZ) under review, though the recent approval of its $20 billion acquisition of Frontier Communications adds a new, potentially positive variable to the equation. While Verizon’s fundamentals remain stable, and the company continues to deliver strong operational results, the broader market context and competitive landscape are evolving in ways that merit close monitoring.
Verizon reported solid first-quarter results in April, including better-than-expected revenue, record adjusted EBITDA, and robust free cash flow. At that time, equity markets were still weighed down by tariff-related uncertainty, and defensive, dividend-rich names like Verizon attracted capital for their perceived stability. The stock’s 6.2% yield and consistent cash generation provided insulation from macro risk, allowing investors to look past Q1’s loss of 289,000 postpaid phone subscribers – a figure that reflected ongoing wireless price competition and churn pressures.
Since then, however, sentiment has turned. The sharp rebound in growth and tech stocks – fueled by optimism around easing trade tensions and broader risk appetite – has triggered a rotation away from telecom and other defensive sectors. VZ shares have declined more than 3% since the beginning of May, a trend compounded by insider activity such as the sale of 9,000 shares by CEO Kyle Malady. While not concerning in isolation, it has added to near-term investor caution.
At current levels, VZ trades at a forward P/E of 9.3 and a price-to-FCF multiple below its long-term average. However, with no immediate catalyst to re-accelerate subscriber growth or expand margins, valuation alone has not been enough to stabilize the stock in a market repricing toward innovation, infrastructure, and platform-driven growth.
That said, the FCC’s approval of Verizon’s Frontier acquisition could mark a turning point. The deal significantly expands Verizon’s fiber footprint – particularly in underserved and rural markets – and positions the company for long-term growth in bundled wireless and broadband services. Management expects meaningful operating synergies and has emphasized the infrastructure upside. In addition, the deal’s terms include a shift away from costly DEI programs, potentially improving cost structure without sacrificing execution.
We are holding the position under review as we assess how the Frontier acquisition translates into market sentiment and operational momentum. Verizon still offers income stability and financial strength, but we are watching closely to determine whether the company can reassert strategic relevance in a market increasingly focused on scale, innovation, and growth. We expect to revisit our stance once the integration path and investor response become clearer over the next few weeks.
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Portfolio Earnings and Dividend Calendar
❖ The Q1 2025 earnings season is drawing to an end, and although several Smart Portfolio companies have yet to report their results, these will be published later this month and in June. However, one important report is coming on May 28 after hours – Salesforce (CRM).
❖ The ex-dividend date for RTX (RTX) is May 23.
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New Buy: Qualcomm (QCOM)
Qualcomm Incorporated is a global leader in wireless technology and semiconductor innovation, best known for designing and licensing critical intellectual property used across mobile communications, connectivity, and edge computing. The company is the world’s leading supplier of smartphone application processors and cellular modem chipsets, and it holds one of the largest patent portfolios in 5G technology. Qualcomm plays a foundational role in the mobile ecosystem, with its technologies embedded in billions of devices worldwide. Beyond mobile, the company is expanding its footprint into automotive, Internet of Things (IoT), and data center markets, leveraging its expertise in power-efficient, high-performance computing. Qualcomm’s vertically integrated model and leadership in wireless standards position it as a strategic enabler of next-generation digital infrastructure across consumer, industrial, and enterprise applications.
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Scaling the Stack
Qualcomm was founded in 1985 by Dr. Irwin Jacobs and six co-founders, originally to commercialize advanced digital communication technologies. The company played a pivotal role in the development and global adoption of CDMA (Code Division Multiple Access) – a foundational standard in mobile telecommunications. Throughout the 1990s and early 2000s, Qualcomm transitioned from a hardware manufacturer to a technology licensor and chip designer, establishing itself as a cornerstone of the mobile revolution. Its licensing business – based on a deep portfolio of standard-essential patents – remains one of the most lucrative in the semiconductor industry.
Over the past five years, QCOM has undergone a strategic transformation to diversify beyond its core mobile market while reinforcing its leadership in 5G. A central driver of this shift has been the aggressive expansion of its Snapdragon platform into adjacent sectors – including automotive, IoT, XR, and edge AI. The 2021 launch of Snapdragon Digital Chassis marked Qualcomm’s entrance into the vehicle compute and telematics stack, with partnerships signed across major OEMs such as BMW, GM, and Mercedes-Benz.
M&A has played a key role in Qualcomm’s evolution. In 2021, it acquired CPU design firm Nuvia – bringing advanced custom core capabilities in-house. This helped the company boost the performance ceiling of its Snapdragon chips while preparing to challenge incumbents in premium computing markets. In 2022, the company deepened its strategic collaboration with Samsung Foundry and TSMC – supporting volume 4nm and 3nm manufacturing critical to its flagship SoCs. QCOM has also maintained a long-standing relationship with Meta, supplying chips for the Quest VR/AR headsets. More recently, the acquisition of Edge Impulse in 2025 – a developer platform used by over 170,000 engineers to train and deploy AI models at the edge – and the launch of its FocusAI video analytics solution for IoT security applications underscore a decisive pivot toward platform integration.
These moves reinforce Qualcomm’s broader transition from a pure semiconductor vendor to a platform-based company – one that delivers full-stack hardware-software solutions tailored to developers, OEMs, and system integrators. The company is increasingly positioning itself as an ecosystem enabler, bridging edge compute, connectivity, and AI across industries.
AI integration has been a recurring theme. In 2023, Qualcomm began embedding dedicated AI accelerators across its SoCs – targeting on-device generative AI applications. Its AI Engine and Hexagon DSP architectures now support LLM inference on phones, wearables, and edge devices – an area of growing strategic focus. In 2024, the company announced new AI partnerships with Microsoft, OpenAI, and key cloud providers to align hardware roadmaps with emerging developer frameworks.
Under CEO Cristiano Amon, Qualcomm has also sharpened its focus on enabling next-generation connected systems. With global 5G coverage expanding and demand for low-latency compute rising, QCOM is positioned as both a standard-setter and supplier for digital infrastructure – from handsets to cars to industrial gateways.
Qualcomm’s consistent performance and revenue figures have secured its place among the top global corporations. With a market cap of $169 billion and annual (TTM) revenues of $39 billion, the company is ranked #117 on the Fortune 500 list.
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Frequency Shift
Qualcomm operates at the core of the global wireless ecosystem, with its business built around designing and licensing the technologies that enable connectivity, intelligent edge computing, and power-efficient processing across a wide range of devices. Though long known for dominating the smartphone chipset and modem space, QCOM today positions itself as a platform enabler for the connected economy – spanning mobile, automotive, XR, industrial IoT, and, most recently, AI-driven data centers.
At the heart of the company’s model are its two primary segments: QCT (Qualcomm CDMA Technologies), which generates the vast majority of its revenue through semiconductors and platforms like Snapdragon; and QTL (Qualcomm Technology Licensing), a high-margin engine powered by its unparalleled portfolio of standard-essential patents. Together, these segments address a total addressable market (TAM) estimated to exceed $700 billion by the end of the decade – driven by secular trends in connectivity, edge intelligence, autonomous systems, and AI.
While mobile remains a foundational revenue stream, growth is increasingly being fueled by expansion into automotive compute, premium-tier wearables, and connected industrial infrastructure. Snapdragon’s vertical integration across CPU, GPU, AI, and 5G modem components has allowed QCOM to outcompete rivals on performance-per-watt – a critical edge in constrained environments like vehicles and smart factories. Automotive design wins now exceed $30 billion in lifetime revenue, supporting long-cycle growth.
The most consequential development, however, is Qualcomm’s re-entry into the data center market. On May 19, 2025, the company announced plans to build custom server CPUs designed to work seamlessly with Nvidia’s AI accelerators – marking a strategic pivot toward AI infrastructure. This includes a partnership with HUMAIN, Saudi Arabia’s state-backed AI firm, to supply processors tailored for hyperscale AI workloads across the Middle East and allied markets. The move positions Qualcomm to tap into one of the fastest-growing compute segments – where AI-specific server demand is expected to grow at a 30%+ CAGR through 2030.
Crucially, QCOM isn’t trying to displace Intel or AMD in general-purpose computing. Instead, it is targeting a high-value niche by designing CPUs that complement Nvidia’s GPUs – optimizing data movement, inference orchestration, and seamless integration within Nvidia’s hardware and software stack. This co-processor model leverages Qualcomm’s low-power, high-efficiency architecture strengths without entering a margin-eroding fight in mature server categories.
Qualcomm’s longstanding relationships with Nvidia, Arm, and Meta strengthen its credibility and offer distinct advantages. Its chips already power Meta’s XR devices, and its CPU designs are built on Arm – where Qualcomm has decades of optimization experience. The timing of QCOM’s re-entry is spot on, as soaring demand for AI inference and training compute, coupled with increasing appetite for heterogeneous architectures (CPU + GPU tightly integrated) and a growing need for custom data center hardware, especially in sovereign AI markets, opens up lucrative opportunities.
If it captures even a low-single-digit share of the AI server CPU market by 2027, Qualcomm could generate $2-3 billion in incremental revenue – potentially adding 5-10% to topline growth over the next three to four years. Importantly, the move also offers higher-margin diversification and strategic insulation from mobile cyclicality – anchoring long-term relevance in global compute infrastructure.
This strategic shift is capital-intensive, but QCOM’s move is supported by its fundamental strength. With a net debt-to-equity ratio near zero and strong free cash flow generation, the company is well-positioned to fund the capex required for expansion into the high-value AI CPU market.
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Signal Integrity
QCOM continues to demonstrate robust operating momentum, powered by diversification into higher-growth markets and disciplined execution. In fiscal Q2 2025, the company reported revenue of $11.0 billion and a record adjusted EPS of $2.85 – both up 17% year-over-year – coming in at the high end of prior guidance, and above analyst expectations. QCT, which includes the Snapdragon chipset business, posted $9.47 billion in revenue, up 18%, with automotive and IoT sub-segments growing 59% and 27% respectively – a combined 38% jump year-over-year. Licensing (QTL) remained stable, with $1.32 billion in revenue.
Earnings before tax (EBT) totaled $3.69 billion on a non-GAAP basis, up 16% from the prior year, with QCT’s EBT margin rising to 30% and QTL sustaining a 70% margin – underscoring Qualcomm’s dual-engine model of product sales and high-margin IP monetization. Net income reached $3.17 billion, easily beating consensus and reflecting improved mix and margin efficiency. Operating cash flow for the first six months of the fiscal year was a strong $7.1 billion, with free cash flow surging 66% YoY to $3.2 billion. Qualcomm increased its capital return target to 100% of free cash flow in fiscal 2025, reflecting confidence in its financial targets and strong cash generation.
These results reflect Qualcomm’s ability to execute through macro volatility while leaning into growth vectors such as automotive, industrial IoT, and AI infrastructure. With handset revenues rebounding and diversification levers gaining traction, QCOM enters the second half of fiscal 2025 from a position of strength – financially resilient and strategically expanding.
Looking ahead, the company issued Q3 FY25 guidance of $9.9-10.7 billion in revenue and non-GAAP EPS of $2.60-2.80, bracketing consensus expectations and suggesting ongoing strength despite normalizing handset volumes. Guidance implies ~22% revenue growth and ~44% EPS growth year-over-year at the midpoints.
Qualcomm is proactively managing the phased reduction of its modem business with Apple, which began rolling out its in-house C1 modem in early 2025. While QCOM will continue supplying 5G modems through 2026, it expects its share of Apple modem shipments to decline to around 20%, with a full transition likely by 2027. The company has anticipated this shift and is actively offsetting the impact through growth in automotive, IoT, and infrastructure markets.
The management has outlined ambitious segment-specific targets to support its long-term growth and diversification thesis. The company aims to grow non-handset revenues to $22 billion by FY2029, including $8 billion in automotive, $4 billion in PCs, and $2 billion in XR – with the expected incremental revenues more than offsetting the potential Apple shortfall and helping mitigate customer concentration risk in mobile.
These goals reflect the increasing contribution of edge AI and connectivity platforms, bolstered by new offerings like the Snapdragon X85 5G Modem-RF System – supporting peak download speeds of up to 12.5 Gbps and expected to begin shipping in the second half of FY25. Management continues to emphasize the expanding role of generative AI in driving new demand across these categories.
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Catch-Up Cycle
Qualcomm’s stock has lost about 23% over the past year, underperforming most of its peers in the industry. Although the stock’s movements have mirrored broader technology trends – taking a tariff-related hit this year, just like much of the market – it has also been weighed down by cyclical weakness in some of its end markets, the Apple phaseout, and the perceived lag in AI exposure. Still, QCOM has staged a strong rebound from its trough on April 4, rising by over 20% since then.
Until recently, QCOM had been largely overlooked in the market’s AI-driven rally, with investor attention concentrated on training-focused infrastructure names like Nvidia and AMD. However, this gap is beginning to narrow as Qualcomm’s positioning becomes clearer – spanning on-device inference, custom Arm-based CPUs for AI workloads, and strategic partnerships with hyperscalers and players like Nvidia and HUMAIN. As AI adoption shifts toward edge, automotive, and distributed compute environments, QCOM is increasingly recognized as a key enabler – with valuation upside tied to its expanding role across AI-enabled platforms.
Still, this “narrative gap” has left QCOM trading at a steep discount to the Technology sector average as well as to its peers. The stock’s non-GAAP and GAAP P/E multiples – both TTM and forward – carry a discount of about 40% to the sector average, while ranking near the bottom of the peer valuation scale. QCOM’s EV/EBITDA multiples are discounted by about 30% to the sector as well, also coming in below those of its closest peers. Moreover, based on future cash flows, Qualcomm appears to be undervalued by about 35%, reinforcing the strength of its investment case.
Beyond the potential for share-price appreciation, QCOM rewards its shareholders through dividends, which it has disbursed – and increased annually – for 21 years. Its dividend yield of 2.23% is already more than triple the Technology sector average and is expected to continue rising at about the same rate as in the past decade (~6.5%) for years to come. This expectation is supported by robust profitability, strong cash generation, modest payout ratios, and the company’s clear commitment to shareholders. In fiscal 2025, Qualcomm increased its target for total return of capital to stockholders to 100% of free cash flow.
This shareholder compensation also includes aggressive buybacks, which aim to offset dilution from stock-based compensation and enhance shareholder value. In November 2024, Qualcomm’s board approved a new $15 billion buyback authorization, supplementing the remaining $1 billion from the previous program. This new authorization has no expiration date, providing the company with flexibility to repurchase shares based on prevailing market conditions and other factors. In fiscal 2024, QCOM repurchased approximately $4.1 billion worth of its stock, adding buybacks of 15.22 million shares for around $2.47 billion in the first half of fiscal 2025.
Taken together, these factors suggest that the market’s prior underappreciation of Qualcomm’s positioning is increasingly untenable. As its AI relevance becomes more visible and its diversified growth engines gain traction, QCOM appears well-poised for a sustained revaluation. For long-term investors, the combination of deep value, rising strategic importance, and consistent capital returns presents a compelling entry point.
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Investing Takeaway
Qualcomm is a platform-driven innovator at the core of global wireless, compute, and edge AI infrastructure. With unmatched scale in mobile chipsets, leadership in 5G IP, and growing relevance in automotive, XR, IoT, and AI-driven data centers, QCOM is transitioning beyond semis into full-stack platform enablement. Its deep OEM relationships, custom silicon roadmap, and capital discipline support durable earnings and cash generation. Despite surging profitability and an increasingly differentiated AI footprint, the stock trades at a steep discount to peers on both earnings and EV-based multiples. With a reset Apple headwind, multi-year growth targets across non-handset segments, and rising shareholder returns backed by strong free cash flow, Qualcomm offers a compelling mix of value, structural upside, and underappreciated AI leverage – with multiple catalysts already in motion.
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New Sell: McKesson (MCK)
We are selling McKesson despite its leading position as the nation’s largest drug distributor and the strong results it delivered in fiscal Q4 and full year 2025. McKesson remains a fundamentally stellar cash-generative compounder; this decision is driven by the recent shift in federal drug pricing policy.
On May 12, 2025, President Trump signed an executive order titled “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients.” The order directs the Department of Health and Human Services (HHS) to communicate Most-Favored-Nation (MFN) price targets to pharmaceutical manufacturers by June 11. If substantial progress is not made, HHS is instructed to begin rulemaking to enforce MFN pricing across Medicare, Medicaid, and potentially commercial markets. The order also considers expanding drug importation from lower-cost countries.
McKesson operates as a key intermediary between manufacturers and pharmacies. The implementation of MFN pricing poses a direct threat to this model by reducing drug prices, compressing distributor margins, and weakening negotiating leverage. Moreover, the policy’s emphasis on direct-to-consumer pricing mechanisms could bypass traditional wholesale channels altogether. The order explicitly undermines the volume-based rebates and supply chain markups that underpin McKesson’s core profitability.
While management has downplayed the near-term impact of the policy shift, stating they expect only limited operational disruption in the current fiscal year, we view the longer-term risks as material. With the stock already pricing in strong results and trading near upwardly revised analyst targets, we believe this is an opportune moment to exit and lock in gains.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have ebbed and flowed, but our Winners list remained unchanged, still holding 12 stocks: GE, AVGO, ANET, HWM, TPL, EME, TSM, ORCL, APH, IBKR, PH, and CRWD.
The first contender for the Club’s entry is still UBER with 28.38% gain since purchase, followed by IBM with 26.97% increase. Will they gain this rite of passage, or will another stock outrun them to the finish line?
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Disclaimer
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