Here's Why Qualcomm Is Still Overlooked vs. Nvidia and Intel

Qualcomm (NASDAQ: QCOM) has been overlooked as demand for Nvidia and Intel's data center chips takes the spotlight. Nvidia is up about 11% year to date, while Intel has nearly tripled in value. Qualcomm stock is slightly down at the time of writing, but it could be the most compelling buy right now.

Memory shortages have pressured revenue in its handset business, weighing on the stock. However, Qualcomm expects its transition to a diversified edge-to-cloud infrastructure leader to more than double its revenue to $100 billion by 2029, with earnings per share exceeding $18. This is the opportunity that Wall Street is overlooking.

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Expanding the addressable market

The company's first-quarter earnings results show a business in transition. Total revenue fell 3% year over year to $10.6 billion, while adjusted (non-GAAP) earnings fell 7% to $2.65. These declines mostly reflect weak demand in the handset business, but the real story was that non-handset segments reported a combined 20% increase in revenue.

The non-handset growth shows that the shift away from a mobile-focused chips business is already driving results. Automotive revenue grew 38% year over year. Qualcomm has $65 billion in design wins in the pipeline for this segment. It expects to exit the current fiscal year with $6 billion in annualized auto revenue.

At its recent investor day, management raised its fiscal 2029 outlook, calling for non-handset revenue to hit $40 billion. One of the main catalysts for this is the opportunity to scale its Dragonfly platform for data center infrastructure solutions. Revenue from its data center business is expected to reach roughly $5 billion by fiscal 2027 and $15 billion by fiscal 2029.

Why Qualcomm can succeed

There are risks as Qualcomm goes after this opportunity. This transition will put it in competition with Nvidia, whose graphics processing units (GPUs) have been widely deployed in data centers worldwide. Qualcomm's Dragonfly platform aims to design data centers around various types of processing units to ease the memory bottleneck, particularly in artificial intelligence (AI) inference workloads.

However, Qualcomm has its own advantages. It has decades of experience designing high-performance, low-power computing solutions for the mobile market, which it can apply to automotive, data centers, and edge AI (robotics). Its acquisition of chip software startup Modular adds an important layer to the stack, making it easier for customers to run AI across different hardware and platforms.

The company recently signed a long-term agreement with Meta Platforms to supply Dragonfly C1000 CPUs, which will enter production in 2028. This validates that the data center opportunity is real.

What's more, investors are paying hardly any premium for the company's expanding addressable market. The stock is trading at a modest forward price-to-earnings multiple of 16 and less than 10 times the fiscal 2029 earnings target. For investors looking for AI stocks flying under the radar and potentially undervalued, Qualcomm is a promising candidate.

John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Intel, Meta Platforms, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.