Momentum Is Building for Qualcomm to Have a Strong Run in 2025

Key Points

• Chip giant Qualcomm's shares may be better prepared to have much-improved performance over 2024.
• The company has mitigated key issues and is releasing new products that could drive growth.
• The company also provides one of the highest dividend yields among large-cap chip stocks.

Qualcomm NASDAQ: QCOM is one of the leaders in the semiconductor space whose stock might just be ready to take off in 2025. In 2024, shares were having an incredible year, rising 57% by mid-June. However, by the time early Aug. rolled around, shares had plummeted, losing over 30% of their value from the peak. Detrimental developments surfaced, crushing the optimism that many had.

The shares recovered slightly from September to October but ended the year lower than their August low. Now that the company has resolved key issues and/or mitigated them. A new bullish cycle may await the stock. This has somewhat already started to materialize. As of noon Eastern time trading on Jan. 17, Qualcomm shares are up over 7% yearly. Additionally, based on new analysts' ratings tracked by MarketBeat, Wall Street sees a solid upside in shares. The average of two price targets released in January from Barclays and Mizuho implies a 21% upside.

Below, I’ll detail the developments that put a dark cloud over Qualcomm in the second half of 2024 and show how they played out. I’ll also describe new developments around the firm that could be growth drivers in the new year.

Qualcomm’s Apple Problem and Efforts to Mitigate

One of the issues surrounding Qualcomm for years now has been its relationship with key customer Apple NASDAQ: APPL. For a long time, Qualcomm has been supplying the 5G modems that Apple puts into its immensely popular iPhone devices. These modems are essentially the chips that allow Apple devices to connect to 5G networks. For at least "half a decade," Apple has been, according to Bloomberg tech analyst Mark Gurman, building its own 5G modem.

In 2023, Qualcomm renewed its deal to supply the iPhone until 2027. But, in mid-2024, rumors spread that Apple would use its own modems sooner. Those rumors appeared to be true, as the company will be putting its own modem into its lower-end iPhone SE in 2025. By 2027, Apple expects to fully phase out Qualcomm modems.

Still, Qualcomm has known this was an essential inevitability for a long time. It has been diversifying its business significantly due to this. The company’s automotive and Internet of Things (IoT) businesses now exceed the size of its business with Apple. Last year, it generated around $2.6 billion in revenue, while its Apple revenue was approximately in the lower $2 billion range.

Additionally, Qualcomm expects the automotive and IoT businesses to grow much faster. In Q1 2025, the company expects a "mid-single-digit" increase in handset revenue from last year's quarter. However, it expects IoT revenues to grow by more than 20% and automotive revenues to increase by 50%. For the next several years, the company sees combined growth in these segments exceeding 20% annually.

ARM Dispute Win, AI-PCs Can Provide Growth

Another issue hanging over the firm was its litigation with ARM NASDAQ: ARM. In December, a jury found that Qualcomm's AI-PC chips were properly licensed with Arm. This gives the company the go-ahead to keep selling the components and grow its PC business, a central pillar of its IoT growth strategy. Arm says it will pursue further litigation, but this remains a win for Qualcomm.

Still, Qualcomm’s AI-PCs have other issues and news surrounding them. In 2024, reports indicated that many applications were incompatible with the chips. This includes popular games like Fortnite and League of Legends. Overall, industry analysts note that other laptops have superior gaming performance. However, Qualcomm also recently announced that its latest chips will power AI-enabled laptops for $600. This lower price could boost PC sales. The company aims to capture billions in revenue from this market over the next few years.

Also, Qualcomm's poor laptop gaming abilities may not matter to many customers. Data from 2023 shows that gamers massively prefer playing on desktop computers to laptops. Only 13% of gamers are likely to be playing on laptops. This suggests that Qualcomm's laptop gaming issues might not push many customers away.

Qualcomm Set for a Big 2025?

Overall, with several issues largely behind them or mitigated, Qualcomm shares could be ready to take off in 2025. The issues with its laptops may be overblown, meaning they could overperform expectations. The company's automotive and IoT growth drivers show promise. They soften the blow of the Apple relationship wind-down. Additionally, the company has a nice added bonus in being a chip stock that provides a solid dividend yield of 2%.