Qualcomm (QCOM)

Total return at 5 years: 5.4%/year = 3.1% appreciation + 2.3% dividend. The target price ($203) is ex-dividend; the $21 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $215 · Multiples $182) exceeds the market price ($174).

Today — fairly valued: at $174 trades ~3.9% below its value discounted to today (~$182); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($203) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$115.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($174) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (1.5%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$8.8 bn of owner earnings in year 5 (vs ~$10.9 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Qualcomm is valued as a sum of the parts on NOPAT: QCT, the fabless semiconductor business, and QTL, the royalty stream on the essential patent portfolio. They are two different economies —QCT charges per unit sold with a pre-tax margin of 26% in the third quarter of fiscal 2026, QTL charges a percentage of the device price with a 69% margin and minimal invested capital— and that is why each piece carries its own multiple. The metric is NOPAT on accounting operating income, which expenses stock-based compensation: it is US$3.24 billion over the last twelve months, barely 7.4% of revenue but 31.1% of free cash flow, so valuing on reported flow would give that cost away. The 12.5% tax rate is the estimated fixed non-GAAP rate the company itself publishes in the reconciliation of the third-quarter fiscal 2026 release; the XBRL effective rates of the last two fiscal years are artifacts of the US$5,724 million valuation allowance on deferred tax assets recorded in the fourth quarter of fiscal 2025 and of its subsequent reversal, which took deferred tax assets from US$743 million to US$5,679 million. Year zero is the twelve-month window ended 28 June 2026 and year one starts from the company's guidance for the fourth quarter of fiscal 2026: revenue of US$9.7 to 10.5 billion, midpoint US$10.1 billion against US$11.27 billion in the comparable quarter. Cash does not accumulate: the company returns more than its free cash flow and the surplus is imputed through the share path, not twice.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $203 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $174, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $203 in 5 years plus $21 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $182. Against the current market price ($174), the margin of safety is 3.9% (trades below the maximum → there is margin) and the total return at that price would be 5.4% annually.

• Entry multiple. At $174 the market pays 22× on the last-twelve-months metric, which compresses to 18× on the terminal-year metric if the path holds.
• Exit multiple. 19 times NOPAT for QCT and 17 for QTL, weighted by each piece's contribution to terminal-year earnings, within the archetype's band and near its floor.
• Dividend yield. 2.1% at the current quote, with dividend per share up from $2.86 in fiscal 2022 to $3.68 annualized after the increase from $0.89 to $0.92 per quarter declared within the third quarter of fiscal 2026 (period ended June 28, 2026) and already paid.
• Estimated return. +5% annually in the base scenario, against +5% in the adverse and +5% in the favorable: the width reflects that the transition's outcome isn't in the numbers yet.
• Terminal earnings yield. The inverse of the weighted exit multiple is around 5.4%, which presupposes the business keeps compounding after year five, supported by automotive and IoT.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (92%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 25.8% on the balance sheet's invested capital, well above the 10% bar representing the market's opportunity cost.
• Capital intensity. Capex of $1,985 million over the last twelve months on revenue of $44,069 million: the fabless model leaves heavy investment in the hands of the foundries.
• Stock-based compensation. $3,242 million over the last twelve months: 7.4% of revenue but 31.1% of free cash flow. The valuation metric is NOPAT on GAAP operating income, which expenses it.
• Cash conversion. Free cash flow of $10.4 billion against net income of $9.3 billion over the last twelve months: earnings are backed by cash despite tax payments exceeding the provision.
• Reinvestment runway. R&D spend rose from $6,672 million to $7,523 million over nine months, directed at automotive, IoT, and data centers, with the return still to be proven.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Qualcomm's drivers are two and they read differently. QCT is volume times price: chip units shipped times average selling price, with premium-tier mix as the margin lever. QTL is licensed base times royalty rate: a percentage of the wholesale selling price of the licensed device, charged to hundreds of manufacturers regardless of which chip is inside. The diluted-share series and the buyback series show the third lever of per-share value, which over the last twelve months was $9.25 billion.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (28-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Automotive. Grew 61% year over year in the third quarter of fiscal 2026 and has posted 23 consecutive quarters of double-digit growth.
• IoT. Added $1.5 billion in shipments in fiscal 2025 across edge networking, consumer, and industrial, and grew 9% year over year in the quarter.
• Handsets. Fell 20% year over year in the third quarter of fiscal 2026 to $5,086 million, the company's largest line.
• Licensing. QTL revenue essentially flat between fiscal 2024 and 2025 despite new multi-year agreements, following the cessation of Huawei royalties in the second quarter of fiscal 2025.
• Stated non-handset target. The company announced a $40 billion non-handset revenue target for fiscal 2029 and an acceleration of growth from 24% in fiscal 2026 to more than 60% in 2027.

• Recurrence of the licensing stream. QTL bills hundreds of licensees quarterly a percentage royalty on the device price, with a 69% pretax margin in the third quarter of fiscal 2026.
• Pricing power. The company stated it is passing the industry-wide increase in input costs through to prices and expects a gross-margin benefit as the changes take effect.
• Customer concentration. Apple, Samsung, and Xiaomi each individually accounted for 10% or more of consolidated fiscal 2025 revenue, and all three develop their own integrated circuits.
• Differentiated product. The Snapdragon and Dragonwing platforms integrate compute, connectivity, and artificial intelligence on a single chip, with performance and power consumption cited as competitive factors in the annual report.
• Behavior through the cycle. Revenue fell 19% in fiscal 2023 and recovered 8.8% and 13.7% in the following two years: the semiconductor business is cyclical and the handset line amplifies the swing.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.6x
• ✓Interest coverage (EBIT / interest)14.8x
• ✓Liquidity (current ratio)2.02×
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 92% of ROIC
• ✓Value creation (ROIC − 10% bar)+16pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.3x
• !Float / working capitalConsumes cash $0.5 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 7.4% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net debt. $6,966 million as of June 28, 2026, less than a year of free cash flow.
• Liquidity. Cash of $4,533 million plus marketable securities of $3,771 million, against short-term debt of $2,489 million.
• Inventories. Grew $1,798 million over nine months to $8,379 million, amid weak handset demand: this is the line item to watch.
• Interest coverage. Interest expense of $519 million over nine months of fiscal 2026 against operating income of $7,302 million in the same period.
• Equity. Rose from $21,206 million to $27,658 million over nine months, mainly from the reversal of the valuation allowance on deferred tax assets.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO track record. Cristiano Amon has spent 31 years at the company and five in the top role; he knows the semiconductor business from the inside, having led QCT.
• Buying back at a good price. Repurchased 56 million shares in fiscal 2025 at an average of $155.43 and sustained the pace with $9.25 billion over the last twelve months, at a depressed quote.
• Insider ownership. Sitting executives and directors as a group own less than 1% of the capital; alignment rests on variable compensation, not ownership.
• Acquisitions. The Alphawave IP Group purchase, closed in the first calendar quarter of 2026 for an implied enterprise value of approximately $2.4 billion, added goodwill —the line item rose from $11,358 million to $14,274 million— and released the $2,323 million in restricted cash set aside to pay for it, with no earnings yet in the numerator of return on capital. Modular, closed around July 28, 2026 and paid with the issuance of 17,826,566 shares, is a subsequent event to the balance sheet cutoff date.

• Motivated sellers: third-quarter revenue, reported on July 29, 2026, closed at the high end of the company's own guidance and above consensus, but non-GAAP EPS guidance for the fourth quarter of fiscal 2026, of $2.05 to 2.25, disappointed the market; the stock fell sharply.
• The market extrapolates the 20% year-over-year decline in the handset line as if it were permanent and simultaneous, when Apple's modem transition is gradual and the company has already guided to 24% growth in non-handset revenue for fiscal 2026.
• Missing buyers due to mandate rotation: capital chasing AI semiconductor exposure migrated to data-center accelerator makers, and Qualcomm got classified as a declining-handset story even though automotive and IoT already contribute more than $10 billion annually.
• The fiscal 2025 accounting result is distorted by the $5,724 million valuation allowance on deferred tax assets recorded in the fourth quarter: net income fell to $5,541 million from $10,142 million without the business deteriorating by that magnitude, and every ratio built on that figure overstates the deterioration.

The source of the discount is identifiable and positive: a quarter that beat both the company's own guidance and consensus nonetheless drew a trimmed EPS guide for the following quarter, presented on July 29, 2026, on a business whose largest line is in structural transition. This is not a case of missing buyers without cause. The question is one of magnitude, not existence: if the largest customer's insourcing completes before automotive, IoT, and data centers reach scale, the market is right; if the two curves cross, it isn't.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -7%/year (-31% total): the margin of safety protects the downside. The bull (+17%/year, +119% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Customer vertical integration. The annual report states that Apple is expected to increasingly use its own modems instead of Qualcomm's, with a significant negative impact on QCT's revenue and cash flow.
• China concentration. A significant portion of revenue comes from Chinese manufacturers or sales in China, exposed to the self-sufficiency policy and U.S. trade restrictions.
• Licensing disputes. Some manufacturers dispute the payment of fair and reasonable royalties, which can lead to litigation, investigations, or decisions that alter licensing practices.
• Third-party dependence. Manufacturing depends on TSMC, Samsung Electronics, and GlobalFoundries, and assembly and testing on a limited number of suppliers concentrated in Asia-Pacific.
• Input costs. The industry-wide increase in wafer, assembly, test, advanced packaging, and memory costs compressed the third-quarter margin, and the pass-through to prices takes effect gradually.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: wide moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 3.6 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 26% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 1% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -10%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, eroding; sources: intangibles, efficient scale, switching costs, network effects → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 1%, within what we project (6%) — the story squares with the numbers.