Qualcomm's (QCOM 9.74%) stock price surged by 10% following its second-quarter earnings announcement. It continues to benefit from the massive growth in the 5G chipset market and has begun to experience success in other business lines.
Still, this leads to a question of whether it can join other tech companies in achieving a $1 trillion market cap by 2030. Let's take a closer look at the business to see if it can achieve that milestone over the next nine years.
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The path to $1 trillion
As of writing, Qualcomm's market cap stands at $166 billion. Hence it needs approximately a six-fold increase to reach the $1 trillion level. Over the next nine years, stock price growth would have to average 22% per year to achieve this goal.
The 130% growth rate over the last 10 years would fall short of reaching such a goal. However, since January 2020, the stock has risen by 67%, a pace more amenable to achieving the $1 trillion market cap milestone by 2030.
Qualcomm's business
The company's business could certainly help. Data Bridge Market Research believes the market size for 5G chipsets will grow to over $2.5 trillion, amounting to a compound annual growth rate of 49%! As a leading company in this space, the handset market should serve Qualcomm well in the near term.
Moreover, amid rising competition and an evolving market, it has ventured into other areas. Its Internet of Things (IoT) and automotive segments have become increasingly significant revenue drivers. On the second-quarter 2022 earnings call, the company stated that its automotive design win pipeline, a measure of its market size, grew to $16 billion. This grew by more than $3 billion when compared with the previous quarter.
It also plans to launch a PC chip over the next year, adding communication capabilities to this market. Additionally, its Snapdragon chip goes into Meta Platforms' Oculus VR headsets, placing the company directly into the metaverse. And a $100 million research fund in this market could lead to further applications in this segment.
Nonetheless, the most significant risk may come from China. In fiscal 2021, around two-thirds of Qualcomm's revenue came from the People's Republic. Now, the country faces COVID-19-related lockdowns, and U.S.-China relations have cooled amid Russia's invasion of Ukraine. Such outside challenges could affect Qualcomm's revenue stream should relations deteriorate further.
Qualcomm's financials
However, for now, revenue growth appears robust. Qualcomm generated $21.9 billion in overall revenue for the first six months of 2022, 35% more than in the same period in the previous year. The handsets segment made up $12.3 billion of the company's revenue, increasing 48% compared with the same period in fiscal 2021.
It has also expanded into other segments, including IoT and automotive. In the first six months of 2021, these revenue streams grew by 51% and 32%, respectively.
This led to a net income of more than $6.3 billion in the first two quarters of fiscal 2022, 50% more than the same period in fiscal 2021. Limiting expense growth more than offset increases in income taxes and investment losses.
Moreover, the growth will likely continue. The company believes it will earn revenue between $10.5 billion and $11.3 billion in the third quarter. Since revenue came in at $8 billion in Q3 2021, this would represent a 35% year-over-year increase at the midpoint.
Qualcomm's valuation could also add to the likelihood of achieving the $1 trillion market cap. The stock currently trades at a price-to-earnings ratio of 17. Other chipmakers in this field, such as Apple and Broadcom, sell for 27 and 33 times earnings, respectively, indicating that the market has undervalued Qualcomm.
Thanks to the earnings beat, the 9% growth in the stock over the last 12 months also came out ahead of the S&P 500, which has returned 4% over the same period. The low valuation likely helped Qualcomm sidestep the sell-off in the tech sector, even though stock price growth was well under 22% over the last 12 months.
Will Qualcomm make it to $1 trillion?
Despite single-digit returns over the last year, making it to a $1 trillion market cap by 2030 is an achievable goal for Qualcomm. Given the forecasted $2.5 trillion size of the addressable 5G chipset market, Qualcomm will likely claim a large portion of that business. Moreover, its considerable earnings increases and the low P/E ratio should push the stock higher regardless of whether the S&P 500 follows suit.
Admittedly, anything can happen over nine years, and Qualcomm's heavy dependence on China could hurt its investment thesis should U.S.-China relations deteriorate more. Nonetheless, its chipset business and expansion into other areas should bode well for the semiconductor stock.
