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Qualcomm (NASDAQ: QCOM) isn't often mentioned in the same breath as AI leaders like Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO). It's one of the world's largest mobile chipmakers. Still, its AI-oriented chips haven't attracted nearly as much attention as Nvidia's data center GPUs or Broadcom's custom AI accelerators for hyperscalers.
Qualcomm's stock has still risen 40% over the past five years, but shares of Nvidia and Broadcom have rallied about 1,000% and 630%, respectively. However, Qualcomm still doesn't look cheap relative to those AI leaders for three simple reasons.
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Qualcomm's main AI strategy is to add edge AI (on-device processing) features to its existing chips. The latest versions of its Snapdragon chips -- which power mobile devices, wearables, vehicles, and PCs -- process AI tasks locally instead of relying on cloud-based services.
These edge AI chips are innovative, but they primarily target budget-constrained consumer device manufacturers, which ultimately limits their pricing power and the total addressable market. By comparison, Nvidia and Broadcom produce AI chips for hyperscalers, which are spending hundreds of billions of dollars to expand their cloud-based AI infrastructure.
Qualcomm is trying to expand into the data center market with its Cloud AI 100 and next-gen AI accelerators for inference tasks, but it could struggle to stand out in that crowded market.
From fiscal 2025 (which ended last September) to fiscal 2028, analysts expect Qualcomm's revenue and EPS to grow at CAGRs of 6% and 27%, respectively. That growth trajectory is healthy, but it pales in comparison to its hyperscaler-driven AI peers.
From fiscal 2026 (which ended this January) to fiscal 2029, analysts expect Nvidia's revenue and EPS to both grow at CAGRs of 61%. From fiscal 2025 (which ended last November) to fiscal 2028, they expect Broadcom's revenue and EPS to grow at CAGRs of 62% and 80%, respectively. We should take those estimates with a grain of salt, but they indicate that Qualcomm's focus on edge AI chips will limit its long-term growth.
Qualcomm underperformed Nvidia and Broadcom by a wide margin over the past few years, but it's still fundamentally more expensive relative to its future earnings.
As of this writing, Qualcomm trades at 26 times next year's earnings, while Nvidia and Broadcom trade at 15 and 22 times next year's earnings, respectively. Most investors will look at those multiples and buy Nvidia and Broadcom instead of Qualcomm -- and that trend will likely continue unless Qualcomm makes more progress in the data center market.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.
Qualcomm Doesn't Look Cheap Next to Its AI Chip Peers. Here's Why. was originally published by The Motley Fool
