The amazing returns that technology stocks have generated for more than a decade now have attracted countless investors to the sector. Many of the best-known tech stocks profit from creating proprietary products that fuel their own business processes, giving their ecosystems a competitive advantage against those of their rivals. However, InterDigital (IDCC 0.54%) has followed a different path, instead focusing squarely on innovation and then licensing out its technologies to third-party companies that then put that knowledge to use in a wide variety of different business applications.
Earlier in this series of articles, you learned about the ins and outs of InterDigital's business and the ways in which InterDigital generates revenue and profits from its work. To conclude this three-part series for the Voyager Portfolio, it's time to turn to InterDigital's prospects for future expansion and why the growth stock is an attractive addition to the portfolio.
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How AI and other tech advances are helping InterDigital
Many of the areas in which InterDigital focuses have benefited greatly from technological innovations over the past 10 years. One example is the shift from desktop computers to mobile devices. In 2017, mobile data traffic amounted to 10.8 billion gigabytes, split roughly evenly between video and other forms of data. This was at the dawn of video streaming services, with Netflix (NFLX +0.12%) having demonstrated the viability of the streaming business model but before when other entrants hadn't yet committed fully to the business model in their own rival subscription services. By 2022, that numbers had jumped to over 90 billion gigabytes. InterDigital now projects that mobile traffic will triple again by 2027 to over 280 billion gigabytes, with video representing by far the lion's share of throughput. That promises to demonstrate the ongoing value of InterDigital's video compression technology and other licensed products.
Longer-term, the positive benefits of InterDigital's technologies are undeniable. Mobile tech generates $5.7 trillion in economic value annually, enabling 35 million jobs and representing over 5% of global gross domestic product. 5G wireless networks alone are expected to add $1 trillion to the global economy in 2030, and future innovations will carry that total far higher from the 4.7 billion users of the mobile internet.
InterDigital's 3 key markets
Mobile smartphones are an important market for InterDigital, but with expected growth of just 3% between 2025 and 2028, it's not the company's most interesting growth opportunity. Rather, the Internet of Things represents a 1.6 billion unit market for the company, with a $400 billion market that centers on automotive applications and connected entertainment and is projected to grow at 6% per year through 2028.
NASDAQ: IDCC
Key Data Points
Even more importantly, content and cloud services are boasting double -digit annual growth rates right now. This $475 billion market stands to benefit the most from AI adoption, and with the massive amounts of data necessary to fuel artificial intelligence models, InterDigital foresees high growth and the ability to start focusing more on boosting profitability as the market matures. Combined, these three markets should help InterDigital reach $1 billion in annualized recurring revenue by 2030.
Why the Voyager Portfolio is investing in InterDigital
Not all of the stocks in the new Voyager Portfolio combine growth potential with good value. But InterDigital offers both.
The stock currently trades at roughly 20 times its trailing earnings. The real question, though , is the extent to which cyclical profits are likely to pull back. Many analysts foresee a sharp decline of roughly a third in 2026. That would bring earnings down from around $15 per share to $10, sending its earnings multiple up to 30 and making the stock a less compelling value.
A pullback is indeed likely, as we've seen it before. However, some of the opportunities that AI creates have been unprecedented. That at least opens an argument that the size of a prospective earnings pullback could prove to be smaller than in the past.
The Voyager Portfolio will therefore invest in InterDigital shares once as soon as mandated disclosure and trading guidelines allow. I'm looking forward to seeing how the innovation stock uses its superior knowledge to benefit shareholders over the long run.
