This semiconductor play with a solid dividend ‘gets no respect’ but could be due for upside
A chip company that has sat out the artificial intelligence rally still has growth potential – and it has a solid history of making dividend payments to shareholders.
Qualcomm shares are down 5% in 2025, a stark contrast to a nearly 20% surge for the VanEck Semiconductor ETF (SMH).
Just last Thursday, the stock slid close to 8% after the company posted fiscal third-quarter beats on the top and bottom lines, posting adjusted earnings of $2.77 per share on revenue of $10.37 billion. Analysts polled by LSEG sought $2.71 per share and revenue of $10.35 billion. The company also issued stronger-than-anticipated guidance for the current quarter.
Nevertheless, investors – and several analysts – appeared to turn their attention toward Qualcomm's shifting business mix, as the company provides modems to Apple and it expects to lose the iPhone maker as a client for that business in the approaching years.
"We understand why the company gets no respect at the moment, but believe there is time to at least do some work on the name," wrote Bernstein analyst Stacy Rasgon in a July 31 report. He rates the stock a buy and has a price target of $185, suggesting about 27% upside from Wednesday's close.
Diversification concerns
Qualcomm sells smartphone chips under its Snapdragon name, and Samsung uses these processors in its latest Galaxy S devices. Revenue from the company's handsets business came in at $6.33 billion, falling short of the $6.44 billion FactSet consensus.
But the company has sought to diversify beyond this offering – as well as its relationship with Apple. For starters, the company's Snapdragon chips are powering Meta Platforms' smart glasses.
Qualcomm is also set on growing its footprint in data centers and artificial intelligence.
Data centers represent "a new growth opportunity for Qualcomm and [are] a logical extension of our diversification strategy as we continue to demonstrate leadership in CPU performance and NPU efficiency," said Cristiano Amon, Qualcomm CEO in a July 30 analyst call. He was referring to neural processing units, a specialized chip for artificial intelligence.
In May, Qualcomm signed a memorandum of understanding with Saudi Arabian artificial intelligence firm Humain to develop data centers.
Qualcomm has also reached an agreement to acquire semiconductor player Alphawave IP Group. The deal is expected to close in the first calendar quarter of 2026.
Amon noted on the earnings call that Qualcomm is "engaged with multiple potential customers and are currently in advanced discussions with a leading hyperscaler" as the company expands its data center strategy. "If successful, we expect revenues to begin in the fiscal 2028 timeframe," he said.
Analysts welcome the push into data centers but acknowledge that investors will need to be patient.
"Qualcomm is still in early stages and revenues might ramp only in 2028, but management noted advanced discussions with a leading hyperscaler," Bank of America analyst Tal Liani said in a July 31 report. He stuck with his buy rating and price target of $200, which suggests 37% upside from Wednesday's close.
Getting paid to wait?
For income investors who are willing to take the ride, there's a reward in the form of Qualcomm's history as a dividend payer. The stock has a current dividend yield of 2.4%.
The company has been steadily growing its dividend payments over the past two decades. In this fiscal third quarter, Qualcomm returned $3.8 billion to shareholders, including $967 million of dividends paid and $2.8 billion in share repurchases.
Investors who bought Qualcomm 20 years ago and reinvested their dividends into the stock would have seen a total return of more than 480%, compared to the price return of over 270%, according to FactSet.
While investors can decide to set up a dividend reinvesting program to build out their position in a stock like Qualcomm – which would assure that they buy shares at regular intervals regardless of the price – they will want to be selective about committing to a particular name.
CNBC BLOG: Darla Mercado, CFP® |
