Qualcomm Is the Most Underrated AI Chipmaker to Buy

Qualcomm's (NASDAQ: QCOM) 51% total return over the past five years looks bad if you compare it to Nvidia and Broadcom, which posted five-year returns of 920% and 720%, respectively. That gap is a consequence of Qualcomm's late entry into the artificial intelligence (AI) chip race.

But Qualcomm just shared some news that changes the entire investment thesis for the company, turning it into one of the most compelling AI stocks virtually overnight.

Image source: Getty Images.

What was the big news?

Qualcomm issued a news release on June 24 that highlighted its data center strategy. It touted "multiple inflection points" it sees coming over the next three to five years. Management believes it can achieve long-term growth in the agentic AI era, and its aggressive goals reflect that.

It boosted its 2029 guidance target to $40 billion, which is almost two times higher than the previous 2029 target. Qualcomm also told investors that it is aiming for more than $15 billion in AI infrastructure revenue from data centers by fiscal 2029.

The growth is supposed to continue well beyond 2029. The news release went on to detail how data centers, robotics, industrial AI, personal AI, and agentic AI are some of the catalysts that will continue to strengthen Qualcomm's financials beyond fiscal 2029. CEO Cristiano Amon said the company is "in a strong position to capture these opportunities."

The company believes it will have a $1.7 trillion total addressable market by 2030. This market size, plus Grand View Research's projected 30.6% compound annual growth rate for the AI market through 2033, explains why investors are starting to get bullish on Qualcomm stock.

The entry into AI is already translating into more sales

Qualcomm makes most of its money selling chips for smartphones, and the saturated condition of that market has weighed on the stock for years. Revenue dipped by 3% year over year in its fiscal 2026 second quarter, and it has woefully underperformed Nvidia and Broadcom despite the fact that all three companies produce microchips.

However, thanks to its new focus on AI, Qualcomm asserts that its phase of declining revenue and profits is coming to an end. The company has already announced two partnerships to make custom silicon for leading hyperscalers, though it has not named which ones they are. Its AI inference accelerators and application-specific integrated circuits give it the potential to rapidly scale up in the industry.

It will still be a while before these shifts lead to meaningful revenue growth. For the current quarter (fiscal 2026 Q3), management is currently projecting a top line of between $9.2 billion and $10 billion, or $9.6 billion at the midpoint. That implies a 7.4% year-over-year decline from its $10.4 billion top line in the prior-year period. Meanwhile, the company has been rewarding investors with stock buybacks, which reached $5.4 billion in the first half of its fiscal 2026, with another $20 billion authorization recently announced.

The valuation is a steal

The way management is talking about its AI initiatives and winning deals with hyperscalers implies revenues will start growing in the near future. Investors shouldn't expect the company to deliver 85% year-over-year growth like Nvidia or a 48% sales increase like Broadcom, but those two companies' track records demonstrate how quickly a chipmaker's trajectory can change.

The stock is trading at values that assume its AI initiatives will not be realized. Its 21.2 price-to-earnings ratio makes it far more favorably priced than Nvidia or Broadcom. It also has a price/earnings-to-growth ratio below 1, which usually indicates that a stock is undervalued.

The stock's rally may not happen right away. It may not even happen this year. However, Qualcomm has tipped off investors that material fundamental improvements will take shape in 2027 and beyond. The valuation doesn't yet reflect that possibility, and those who buy shares today will even get to collect a dividend that at the current price yields 1.8% while waiting for the market to notice.

Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Broadcom, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.