Episode 61 | Is Qualcomm a Value Play or a Value Trap?

In Episode 61 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, analyzes Qualcomm (QCOM), a GWII portfolio holding and underappreciated player in the AI and 5G ecosystem. Qualcomm leads the industry in modem chips, Snapdragon processors, edge computing, and automotive technology, and stands to benefit from the commercialization of low-Earth orbit satellites. Lake points to Qualcomm’s strong gross and net margins, steady cash flow, and $172 billion market cap, but also raises concerns about its limited revenue growth projections of only 2% in 2026, modest management execution, and the risk of a value trap for investors. Lake concludes that while Qualcomm faces real growth challenges, it remains a solid, underrecognized player that deserves close investor attention as new technologies continue to evolve.

Chapters

• 0:00 Introduction
• 5:39 Business
• 11:20 Management
• 13:24 Price/Valuation
• 15:45 Balance Sheet
• 18:04 Conclusion

Transcript

Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started.
Welcome back to Market News with Rodney Lake. I'm your host, Rodney Lake. We're coming to you from the heart of Foggy Bottom here Washington, D.C.. George Washington University, the GW School of Business right here in Duquès Hall. Duquès family studio. Welcome to any new viewers. And welcome back to any of our existing viewers. Thank you so much for tuning in.
Remember, disclaimer. Entertainment, educational purposes only. For these episodes, we will be talking about companies, some of which that we own, in our portfolios. We being the GW Investment Institute. This is a GW Investment Institute show, our students manage real endowment money, and we try to train them as best we can, to do that, during the semester.
And we're in the heart of the fall semester now. We're in September, which can be a challenging month in the markets, but for us, excuse me, it is a it is a work day, right? It is a day. It is a month that we go to work on our portfolios. Our students are working feverishly, to make sure that we get, the analysis done, by the end of the semester when we have our stock pitch days.
So those will be coming, but we've had a great kickoff to the semester. Our students are very eager to do the work. They're very interested. We just had our first round of presentations, for example, in class, and they have done a fantastic job so far. Shout out to all of our students in Finance 4101, who are working super hard this fall 2025 semester.
Thank you. Please keep up the hard work. Today we're going to be talking about a company in our portfolios. It's not a huge position, but it is, I think an interesting position. And we've talked about this company before. The reason that I'm bringing it back is because, there's been some changes in the market. And excuse me.
And I think this company is largely left out of the conversation on the AI front, this company is Qualcomm. The ticker is QCOM. And one of the reasons that I want to talk about it is because, as in the prior episode on the general update, we talked about the Spectrum deal that was done by EchoStar and Starlink, which is part of SpaceX.
And who's going to be a beneficiary of this direct to consumer direct to sell technology that effectively uses these low Earth orbit satellites that Starlink has for effectively cell towers? Well, that's, you know, a company that's potentially going to benefit as the modem chips, and that is Qualcomm who's a leader in that 5G category. And so I think it's super important to think about again, when these new technologies come out or when these things are being commercialized, not necessarily all new technologies, but when these things are being commercialized and, and consumers can benefit from that.
What are the companies that are going to play a role in them? And Qualcomm is going to be one of those companies. And you talk about edge compute, compute on device and privacy. That's also happening with the Snapdragon chips. And so I do think it's an underappreciated company right now. I do think it's something that as an analyst, as a business person investor, you should be watching.
And it's a position and in our portfolios, excuse me. So I think it's also something that that we need to watch. Now we're going to use the framework business, management, price/valuation, and balance sheet to cover this company. And you know, the standard set up, we're going to score, you know, 1 to 10 for each component and then, you know, have a composite score.
We're going to bring it all together. Now we might we might move those around a little bit again as we go through this. But we'll have a composite score at the end. But I think it's a useful framework for you to think about. It's a useful framework to analyze companies. This framework came from Warren Buffett.
We tagged on, the balance sheet to help us sleep better at night, to make sure that we're evaluating what's the risk in the capital structure. So let's dive in to the some, you know, basic stats right now for Qualcomm. So what are some basic snaps stats for the company. So market cap 172 billion. Is that a big company.
It's a big company. But it's not $4 trillion like in Nvidia. It's not $1 trillion company. Like the Mag 7 or now what's call it Elite 8 with Broadcom included. If you like. So you know but that's not a small company 172 billion. So when we talk about the market cap obviously we're just trying to get a sense of the scale.
Excuse me. So now let's dive in to some revenue numbers. And if you want to talk for a second, I think most people maybe know Qualcomm or at least have heard of it. You know, there a semiconductor company and telecommunications equipment. They have licensing revenue. And they have for the CDMA and the digital technology. And really they lead in wireless, 5G modems, you know, say they sell their designs into companies like Apple, for example, and Apple, is trying to get rid of their modems, but they're a leader in that category and they're becoming a leader in edge.
And if you saw, the recent earnings announcements, they really grew, and the automotive side. And so when you talk about edge compute they're definitely happening. They're definitely making a statement there. And I think it's worth watching what's happening there. And so this, you know, internet of Things, you know, the the chips, they're going to be on these devices.
You know, I think Qualcomm is going to be a leader in that or is a leader right now. And will likely continue to be a leader. So excuse me, I think it's at least at least worth paying close attention to what's happening. So on the business side, let's start diving into some of the numbers now. And so when you talk about okay, well what's the revenue for this company.
Again we mentioned $170 billion market cap. Now revenue right now. If you look through June 29, 2025, and they have a September fiscal year. So their end of their the end of their fiscal year is coming up at the end of this month. But the last quarter that they reported was June, 2025, 43 billion.
Now that's up from 38.9. It's 43.2. That's 15% up. And if you look at what's been happening over the last several years, you know, they had some they had some great years. And if you look at 2021, you know, 42% growth at 33, and then 31% growth, to 44 billion. And then but then a real big reduction, 35 billion, and -19% in 2023.
And then a modest growth up to 38 billion and 8.8%, in 2024. But, you know, the trailing 12 months is better than the projected, at 43, for the full year of 2025 is 12%. So that's definitely a rebound. Now, what's the next year looking like? It looks like, not great. Excuse me. So only 2%.
So that's that is not fantastic growth. So if you're looking at the full year 26th September, you're looking at 44.5 billion and 2.1%. 
Now, as analysts and as business people, this is something that we have to really figure out. Do we think that that number is correct? Do we, the 12% is basically done, right? I mean, we're we're one quarter out, but do we think the 26 and the 27 number are going to be any better than people expect? People are only expecting 2% growth for this company. If the automotive continues to grow, if this internet of things continues to grow, and if you have an uptick and what's happening in the satellite business, that that could really, you know, reinvigorate some growth.
Now, the challenge is one of those things going to happen. Maybe they happen 27, 28. Maybe these don't happen as much as people thought. Maybe the maybe that business doesn't grow. You know, as much as people might think, excuse me. So this is something that we really have to pay close attention to. This is something that, I think is really worth watching now, there, if there's a big divergence, obviously, this is a potential opportunity.
And so that's that's why I'm mentioning it. Now, let's look now down here at the at the gross profit margins. These are quite good and very steady. So if you look at the gross margins right now and the trailing 12 months at 55, projected at 55, for 20 full year 25 and full year 26, and, you know, starting in 21, your 57.5, 57.8, 55.7, 56.2 through 24.
And so very good, very steady. Not something that we're concerned about, very high gross margins given their businesses and the licensing piece and really designing, the chips. That's a great business to be in. It's a high margin business. And if you look at the net margins also very good. And so but the net margin story is actually improving.
And that's something to be optimistic about. Excuse me. So if you look at the net margins now, if you look at the trailing 12 months through June 30th, you're talking about 25%. And the projected number is, again, we care about what's happening now. And we think we care really about what's going to be happening in the future.
The full year number, which the end of the next quarter, which for them, is their fiscal year in 9/30, 2025, 30% net margins. Very good. And 29 is projected for the full year, 26 for the fiscal year. But let's go back. Where have they been? In 21, they were 23. In 22 they were 31.
So a really big bumper year there and 23, 23 in 23, and 24 in 24. And then if they were intentional in doing that, and right now they're 25, through so far through 25, but likely to bump up to 30 is the projection. So, they'll break out of that cycle and be not 25 in 25, but 30 in 25.
So those are excellent too. So if we're thinking about the business, good gross margin, excellent gross margins, excellent net margins, where does the business being hit really if you talk about the growth numbers, if you think, well, I mean, we peaked out sort of a few years ago at 42% in 2021. And we really never recapture that.
We went to 31 and then we went -19. And then even on the bounce back, you know, the highest we're projecting right now is 15.8. And we're that's getting the projection is now 12 for the full year fiscal year through 9/30 and 2% for 26. So not very good. And I think you're going to see that when we get to the valuation.
So overall I think the business is excellent. Let's just mention the free cash flow, generating 11 billion in free cash flow. And that's been consistent over the years. And so great cash flow business. Really fantastic. There but again, where your concern is here as an analyst, as a businessperson, as an investor is, well, if you really can't grow more than 2%, you can't really even grow at you know, the economy level.
So that that can be a super challenge. So that that's something that as an investor, we're going to be concerned about now overall, then let's give the business a score, and move on to the management. So, I think you know for sure, you know, you get a solid seven here, six and a half, seven. Let's go six and a half.
Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started.
Welcome back to Market News with Rodney Lake. I'm your host, Rodney Lake. We're coming to you from the heart of Foggy Bottom here in Washington, D.C.. George Washington University, the GW School of Business right here in Duquès Hall. Duquès family studio. Welcome to any new viewers. And welcome back to any of our existing viewers. Thank you so much for tuning in.
Remember, disclaimer. Entertainment, educational purposes only. For these episodes, we will be talking about companies, some of which that we own, in our portfolios. We bring the GW investments to this is a GW investment institute show our students manage, real endowment money, and we try to train them as best we can, to do that, during the semester.
And we're in the heart of the fall semester now. We're in September, which can be a challenging month in the markets, but for us, excuse me, it is a it is a work day, right? Is a day. It is a month that we go to work on our portfolios. Our students are working feverishly, to make sure that we get, the analysis done, by the end of the semester when we have our stock pitch days.
So those will be coming, but we've had a great kickoff to the semester. Our students, are very eager, to do the work. They're very interested. We just had our first round of presentations, for example, in class, and they have done a fantastic job so far. Shout out to all of our students in finance 4101, who are working super hard this fall 2025 semester.
Thank you. Please keep up the hard work. Today we're going to be talking about a company in our portfolios. It's not a huge position, but it is, I think an interesting position. And we've talked about this company before. The reason that I'm bringing it back is because, there's been some changes in the market. And excuse me.
And I think this company is largely left out of the conversation on the AI front, this company is Qualcomm. The ticker is Q comm. And one of the reasons that I want to talk about it is because, as in the prior episode on the general update, we talked about the spectrum deal that was done by EchoStar and Starlink, which is part of SpaceX.
And who's going to be a beneficiary of this direct to consumer direct to sell technology that effectively uses these low Earth orbit satellites that Starlink has for effectively cell towers? Well, that's, you know, a company that's potentially going to benefit as the modem chips, and that is Qualcomm who's a leader in that 5G category. And so I think it's super important to think about again, when these new technologies come out or when these things are being commercialized, not necessarily all new technologies, but when these things are being commercialized and, and consumers can benefit from that.
What are the companies that are going to play a role in then? And Qualcomm is going to be one of those companies. And you talk about edge compute, compute on device and privacy. That's also happening with the Snapdragon chips. And so I do think it's an underappreciated company right now. I do think it's something that as an analyst, as a business person investor, you should be watching.
And it's a position and in our portfolios, excuse me. So I think it's also something that that we need to watch. Now we're going to use the framework business management price valuation and balance sheet to cover this company. And you know, the standard set up, we're going to score, you know, 1 to 10 for each component and then, you know, have a composite score.
We're going to bring it all together. Now we might we might move those around a little bit again as we go through this. But we'll have a composite score at the end. But I think it's a useful framework, for you to think about. It's a useful framework, to analyze companies. This framework came from Warren Buffett.
We tagged on, the balance sheet to help us sleep better at night, to make sure that we're evaluating what's the risk in the capital structure. So let's dive in to the some, you know, basic stats right now for Qualcomm. So what are some basic Snap's stats for the company. So market cap 172 billion. Is that a big company.
It's a big company. But it's not $4 trillion like in Nvidia. It's not $1 trillion company. Like the mag seven or now what's call it elite eight with Broadcom included. If you like. So you know but that's not a small company 172 billion. So when we talk about the market cap obviously we're just trying to get a sense of the scale.
Excuse me. So now let's dive in to some revenue numbers. And if you want to talk for a second, I think most people maybe know Qualcomm or at least have heard of it. You know, there's semiconductor company and telecommunications equipment. They have licensing, revenue. And they have for the CRM and the digital technology. And really they lead in wireless, 5G modems, you know, say they sell their designs into companies like Apple, for example, and Apple, is trying to get rid of, their modems, but they're a leader in that category and they're becoming a leader in edge.
And if you saw, the recent earnings announcements, they really grew, and the automotive side. And so when you talk about edge compute, they're definitely happening. They're definitely making, a statement there. And I think it's worth watching what's happening there. And so this, you know, internet of Things, you know, the, the chips, they're going to be on these devices.
You know, I think Qualcomm is going to be a leader in that or is a leader right now. And will likely continue to be a leader. So excuse me, I think it's at least at least worth paying close attention to what's happening. So on the business side, let's start diving into some of the numbers now. And so when you talk about okay, well what's the revenue for this company.
Again we mentioned $170 billion market cap. Now revenue right now. If you look through June 29, 2025, and they have a September fiscal year. So their end of their, the end of their fiscal year is coming up at the end of this month. But the last quarter that they reported was June, 20, 25, 43 billion.
Now that's up from 38.9. It's 43.2. That's 15% up. And if you look at what's been happening over the last several years, you know, they had some they had some great years. And if you look at 2021, you know, 42% growth at 33, and then 31% growth, to 44 billion. And then but then a real big reduction, 35 billion, and -19% in 2023.
And then a modest growth up to 38 billion and 8.8%, in 2024. But, you know, the trailing 12 months is better than the projected, at 43, for the full year of 2025 is 12%. So that's definitely a rebound. Now, what's the next year looking like? It looks like, not great. Excuse me. So only 2%.
So that's that is not fantastic growth. So if you're looking at the full year 26th September, you're looking at 44.5 billion and 2.1%. Now.
As analysts and as business people, this is something that we have to really figure out. Do we think that that number is correct? Do we the 12% is basically done, right? I mean, we're we're one quarter out, but do we think the 26 and the 27 number are going to be any better than people expect? People are only expecting 2% growth for this company. If the automotive continues to grow, if this internet of things continues to grow, and if you have an uptick and what's happening in the satellite business that that could really, you know, reinvigorate some growth.
Now, the challenge is one of those things going to happen. Maybe they happen 27, 28. Maybe these don't happen as much as people thought. Maybe the maybe that business doesn't grow. You know, as much as people might think, excuse me. So this is something that we really have to pay close attention to. This is something that I think is really worth watching now, there, if there's a big divergence, obviously, this is a potential opportunity.
And so that's that's why I'm mentioning it. Now, let's look now down here at the at the gross profit margins. These are quite good and very steady. So if you look at the gross margins right now and the trailing 12 months at 55, projected at 55, for 20 full year 25 and full year 26, and, you know, starting in 21, your 57.5, 57.8, 55.7, 56.2 through 24.
And so very good, very steady. Not something that we're concerned about, very high gross margins given their businesses and the licensing piece and really designing, the chips. That's a great business to be in. It's a high margin business. And if you look at the net margins also very good. And so but the net margin story is actually improving.
And that's something to be optimistic about. Excuse me. So if you look at the net margins now, if you look at the trailing 12 months through June 30th, you're talking about 25%. And the projected number is, again, we care about what's happening now. And we think we care really about what's going to be happening in the future.
The full year number, which the end of the next quarter, which for them, is their fiscal year in nine, 30, 20, 25, 30% net margins. Very good. And 29 is projected for the full year, 26 for the fiscal year. But let's go back. Where have they been? In 21, they were 23. In 22, they were 31.
So a really big bumper year there in 23, 23 in 23, and 24 in 24. And then if they were intentional in doing that, and right now they're 25, through so far through 25, but likely to bump up to 30 is the projection. So, they'll break out of that cycle and be not 25 in 25, but 30 in 25.
So those are excellent too. So if we're thinking about the business, good gross margin, excellent gross margins, excellent net margins, where does the business being hit really if you talk about the growth numbers, if you think, well, I mean, we peaked out sort of a few years ago at 42% in 2021. And we really never recapture that.
We went to 31 and then we went -19. And then even on the bounce back, you know, the highest we're projecting right now is 15.8. And we're that's getting the projection is now 12 for the full year fiscal year through 9/30 and 2% for 26. So not very good. And I think you're going to see that when we get to the valuation.
So overall I think the business is excellent. Let's just mention the free cash flow generating 11 billion in free cash flow. And that's been consistent over the years. And so great. Cash flow business. Really fantastic. There but again, where your concern is here as an analyst, as a businessperson, as an investor is, well, if you really can't grow more than 2%, you can't really even grow at you know, the economy level.
So that that can be a super challenge. So that that's something that as an investor, we're going to be concerned about now overall, then let's give the business a score, and move on to the management. So, I think you know for sure, you know, you get a solid seven here, six and a half, seven. Let's go six and a half.
Because, of the, you know, the lack of growth. Now, Cristiano Amon is the CEO and has been for several years now, he has done, I think, a relatively good job of getting them back on track. You know, certainly they've had their, their sort of scuffles with Apple. Excuse me. And as an investor, you would like to see them have their chips continued to be included in Apple devices.
That may or may not work out. And so, I think that's going to be challenging. You know, Apple really wants to replace they're certainly getting in their slim version, their own modem chips. Now, Qualcomm continues to be a market, huge market player, in the modem space for mobile phones. And so I think it's super important to, to pay attention to that and not a huge concern.
Seems like, you know, everybody's figuring out how to make this work from here, but obviously impacting the revenue numbers for, for Qualcomm. But I think has done a relatively decent job. And it's navigating them into this edge computing AI and certainly trying to get, you know, further and further, down that space. And, and I think that's an excellent job.
And if you look at the growth in the automotive space, I think that definitely tells part of that story. So very good. So we won't spend too much time, on this episode on a management, but I would give I'd give, you know, management a seven here. I think there's, plenty of work to do here and positioning the business.
And if you think about what's the top concern, it's the same on the business side. What is management doing about that growth number? That growth number seems to be a little bit too low. And but you know they're partnering with Google on agenetic AI for cars. Again on on the automotive side they definitely seem to be making good progress there.
But it's not yet shown up in the overall growth numbers. The mix of things is changing. And automotive is growing, but really not fast enough to make up for for everything else. And so I think it's important, for us to watch that. All right. Let's now move on. To the price versus valuation. All right. So if you look at okay, well, where are they now on the price versus valuation.
What's the this company's a seasoned company. So we can use the PE here. So if you look at the PE and you talk about, you know, where they are, and where they are versus other people, you know, I think you you may be surprised if you're not following the company. The forward PE is 13, right.
Markets 22 plus. And even you know, round up to 14, 13.42 right now. Excuse me. This is a relatively low PE. And I think part of the reason is because of what's the mix of their products, what's happening in the market. And I think lots of people are, you know, thinking that they may get left behind.
And so if you look at this valuation.
It may look very attractive and you might say, wow, this is a great value that, you know, you have to be careful. It's not a value trap. That can be you know, they can their earnings could continue to deteriorate and or growth rather. And that's a real problem. And so as an analyst, business person, investor, we really need to think about that.
We really need to think about what's happening with the business here. And I would say, we should absolutely be concerned about that. And so, I think that the the valuation is justified at the moment. And but, you know, you're not paying a lot for this, which is good. And I think that's but it's a point to be concerned about.
And if you look at the relative valuation, versus competitors. So if you look at the average for their business and that's companies like Realtech, MediaTek, Broadcom. Excuse me Texas Instruments, Intel. You know the average PE is 53 times. And this is on on the trailing. But and they're 16 right. So they're way cheaper than a lot of these companies.
But again this could be a value trap for them. And I think that's something that's that's a big concern. For us. Now we own this company. So our analysts need to be thinking about this. But let's now I think, when you give the valuation, obviously you're going to give it a high score for being cheap, but also balance out with, well, maybe we're missing something.
So I would say an eight on that. So let's move on. To the balance sheet I think this is going to be, you know, not a bad balance sheet. So if you look at what's happening on the cash and cash equivalents, 10 billion. And if you look at over time, they were at 12 and then 6 and then 11 and 13.
If you go 21, 22, 23 and 24 and the trailing 12 months up to June 30th at 10. But if you look at the total debt right now, you're talking 14 billion. So net debt of $4 billion, but then you're generating free cash flow of 11 billion. So you're really not that concerned about what's happening there.
And that's not something we're super worried about. All right. Well, what's the interest coverage ratio? We always want to be at least. Excuse me, over ten. And we're safely over that 14.4, but not as high as what we would like it. I don't think there's a great reason for Qualcomm to have so much debt on their balance sheet.
And certainly I think it back to them a little bit in, on doing new things, doing different things, doing big acquisitions. And it's an analyst. You'd like to see them, you know, if you're generating 11 billion, in cash, you know, they're buying back shares for sure. But if you're generating 11 billion in cash, you know, pay down some of that debt on the capital allocation side.
And get aggressive on what you think might be a big M&A target. Get aggressive on, you know, new business lines. But you know I think it would be way more comfortable. Again this is our perspective. This is how we operate our portfolios. We like to be in the cash category. And they're not far from doing that. They could turn this around and be in a net cash category.
So I'm going to thing their balance sheet a little bit here. I would say it's something like a seven. A it's okay. It's not a ten. It's not a nine. You know, six and a half. Seven. Probably a seven. They got net debt on the balance sheet, generating a ton of free cash flow interest coverage ratio of nearly 15.
So again, you know, this kind of keeps us up a little bit at night, but not a ton. But it's certainly not helping us sleep like a baby at night. And so big concern, for the growth. Let's go through the components now again here, let that maybe wrap up first rather on the balance sheet
Let's give it a seven. So let's go back now. Let's pull them all together and talk about this. So if we think about Qualcomm overall the business you know 2% growth as I mentioned, not great. Really good margins. You know gross margins of the 50s. Net margins, projected to go into the 30s. But really the concern is the projected growth rate for 2026 at 2.1%.
Now, where we could be optimistic, can they get more edge compute? Can they get deeper into the automotive? Can they take advantage of what's happening in the low Earth orbit satellite business that Starlink is now leading? And maybe the you have the direct to consumer cell service in the towers being these satellites. We'll see. Maybe they're a big player in that.
Maybe that's a source of growth, something that we need to watch. But the business let's give it a six. And revised. Let's go to the management. I think let's also give the management a six. I think they're doing a decent job. I think they could do a better job on the capital allocation side, we talked about the balance sheet.
They could do a better job there on the valuation I think you give them a maybe a seven there, but we can also give them a six there. Let's be conservative. It looks cheap. It could be cheap for a reason. So you kind of move up move back down on that and on the balance sheet. Let's also give them a six.
I think the balance sheet could be better, but really that's a seven. So you know, maybe that bumps you up and maybe you give another part of seven, so you end up a six and a half for everything. If you pull everything together, you give everything a six and a half. I think this is a company that's worth following.
I think this is a company that we own, for sure. And we need to follow. But with the new technologies coming out, low-Earth orbit, satellites growing and multiplying 6000 plus. Now for Starlink and Kuiper, the type of project as part of Amazon growing. I think it's worth paying attention to. They're likely going to be one of the beneficiaries of that growth.
Now, will it happen when it will happen, how fast it will happen or to be determined as an analyst. So I think you need to keep paying attention, keep doing your work as an analyst. Remember, entertainment purposes only and we'll see you back on the next episode. That's it for this episode of Market News with Rodney Lake. Thank you.