QUALCOMM Incorporated (NASDAQ:QCOM) closed at $174.43 on October 12. The stock has returned 32.9% during the last six months, compared to a 21.2% return for the Insider Monkey Billionaire Index and 14.0% for State Street SPDR S&P 500 ETF Trust.
Qualcomm does two different things. It designs the chips inside a great many phones, and it owns patents that make mobile phones work at all. The second business charges a fee to almost anyone selling a handset, whether or not that handset contains a Qualcomm chip.
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The Smaller Business Is the More Profitable One:
Qualcomm reports its two main businesses separately. QCT designs and sells the chips. QTL licenses the patents, and it collects from handset makers regardless of whose chip is inside the phone. The licensing arm earned $881 million last quarter at a 69% margin. The chip business earned $2.19 billion at 26%. Chips bring in most of the profit, and patents keep most of what they charge.
Patent income also holds up better in a weak handset year. The research behind those patents is already done, so almost every royalty dollar drops straight through. That is part of why Qualcomm keeps turning up among the chip stocks billionaires hold in size. The one they hold most of is up 18% since.
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A Few Customers Decide the Revenue:
The chips are where the trouble is. Chip revenue slipped in the most recent quarter, and chip profit fell slightly faster, because a chip business carries its costs whether or not the orders arrive. A small number of handset makers account for most of that revenue, and one of them designs its own chips.
Losing the business in a single phone generation moves revenue in a way no cost programme offsets. The shares still sit roughly a third below their 52-week high even after a strong six months, so the concern has not gone away. That kind of dependence on a few buyers is what separates this from the quality names we think are underpriced.
The Valuation Case:
The stock trades at 19.65 times next year’s expected earnings, on analyst consensus estimates. It is up 13% from the trailing P/E and does not seem like a demanding price for a company earning the margins this one does, and it is not a bargain either. The verdict is that the market is pricing the customer concentration rather than missing it.
One caution on the headline profit. Qualcomm’s reported net margin currently sits above its operating margin, and that gap is a one-off tax benefit rather than anything the business earned. The company left it out of its own non-GAAP figures.
Conclusion:
The patents are the better business even though they are the smaller one. Royalties on research paid for long ago earn a margin the chip side cannot approach, and they arrive whether or not handsets have a good year. However, chip revenue fell, and chip profit fell much further. A few customers decide that line, and one of them designs its own silicon. Watch the chip revenue, because the patents cannot hold the whole company up on their own.
Market Sentiment:
QUALCOMM Incorporated was held by 95 hedge funds with a combined stake value of about $4.04 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 71 hedge fund holders with a cumulative investment value of around $2.07 billion in the previous quarter.
While we acknowledge the risk and potential of QCOM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than QCOM and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
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