Can Qualcomm’s A.I. Expansion Boost the Stock?
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When you run A I at the edge, edge is your phone, is your, is your glasses, is your ear, but is your watch, is your PC, is your car, is an industry equipment and robot. Everything that is not the cloud and and that's where our silicon is going. We're now in every single market at the end.

Hello and welcome to the barren street wise podcast. I'm jack how and the voice he just heard is Christiano amon. He's the CEO of chip maker qualcomm, which is no mostly for its exposure to phones. Christiana woud mind injecting more artificial intelligence buzz into the business and the stock, and he has a plan for that to tell us about IT. I'll also say a few words about alphabets potential break up and in videos, blow out earnings.

Listening in is our audio producer, Jackson. Hi Jackson. Hi jack. It's been decades since, uh, antitrust officials in the U. S. Broke up a big company, but that might be happening now. The wall street journal reports of the justice partment on wednesday said google should have to sell its popular chrome browser as part of a court ordered fix to its monopoly ation of the online search market.

There's other stuff here beyond selling chrome, not giving preferential access to its search engine on phones and what not to use the android system, not paying apple to be the default search option on its phones and know you can't sell chrome someone else and pay that someone else to be the default search option there. This was, I guess you could say, not well received by investors. The stock was down six percent over couple of days, but the stock is still up nicely for the year.

And you get the sense that you could have been worse or or maybe IT couldn't have been worse because I was never quite clear on if you have a monopoly in search, right? The whole thing about search is you want to do you're searching where everyone else is doing their searching because that's where you find the most stuff. So it's a business that just seems to lend itself to being a monopoly.

And you can't break up the search engine. You can take a big search engine and break into two search engine. So I was never quite clear on how this was going to work, but I think this is a pretty b nine out has potential be a banana outcome for investors.

What do you think? Jackson, yeah, i'll root. Our friend of barron says that IT may actually send the stock higher.

IT might get people doing like a some of the parts analysis where you value each individual piece of the business and they might come up with numbers that are higher than where the business trace today. All did his own math on that came up with the number that was thirty percent higher than the recent value for the stock.

And our colleagues that market watch publish the column back in August that compared a potential google break up with what happened with A N T. No, that won't going back several decades. They talk about how the justice department tried in the seventies to split up IBM and IT failed.

And then it's succeed in splitting up a tc into the baby bells. We've talked about that before. I B, M, stage company y, maybe complacent in the mainframe business that was found in the near term, but over the long term, that has been great for the stock.

The N T. Put up, on the other hand, worked out very well for shareholders. We don't yet know the final of what will happen with an alphabet break up, and i'm sure we will dig deeper into this subject in the coming episode.

Meanwhile, in video, its earnings report was what a blow out. Not it's not reflected in the stock. The stock didn't move much theri for people who don't know when we say that the company is projected to earn this.

That number comes from basically a poll. One of the data services goes out and conduct a poll of analysts. What do you think earnings will be and average those together.

And IT comes up the consensus number. And depending on which poll you use, you can get different consensus estimates for earnings, other measures. And those are numbers the companies have to beat. But for companies that make a habit of beating those numbers handling, you're often hear about whispers, numbers.

People are saying, hey, it's actually going to be way above the consensus, just like last time, it's going to be this and then sometimes the analyst poke about and right, here's the whisper number. That always sounds crazy me if you're running IT in a report is not being whispered anymore, it's no longer a whisper. You're publishing the number.

I know I think the best measure of whether a company beat expectations on its earnings report is whether the sock Price jumps. And in this case, I didn't really but our parents colleague take him who just finished writing a book on the video and a cover story for parents on the company he wrote. I wouldn't read too much into the initial reaction, which could easily be some profit taking.

Given that the stock is roughly triple this year and steady route, investors should not overlook the unprecedented magnus de of in videos performance, triple digital growth rates while making tens of billions of dollars isn't Normal, he writes, is about the company's s next generation blackwell chips and staggering demand for them and how that should set the company up for a prosperous year next year, too. okay. So why are we talking about qual com? I say why is quaw comms talking about qual com? They hosted an investor this past week and they laid out a plan for getting the stock Price movement.

I mean, I don't really say that the point the investors that companies never come out. So hey, the point here were trying to make the stock up. I think that would be poor form.

right? Yeah, I think so.

Instead, they talk about how they are going to make more money. They put out a slide deck, and the main phrase on the sort of first slide was enabling intelligent computing everywhere and a rot barns that if i've been higher to write a sub heading for that slide, IT would have been getting some A I stink on the stock. Chip making is the darling of wall street at the moment, but that is mostly to do with the video.

When you look at the filly semiconductor index that tracks not just in video, but also companies that make chips for more workday purposes, that semi index is actually trAiling the S P five hundred. This year, its worst performer is intel, which is down fifty percent. Intel was losing market share in both data centers and personal computers.

So where does call com fit in in all of this? Well, somewhere in the middle, IT has returned about ten percent this year and seventeen percent since Christiano took over in the summer of two thousands. One one.

Both of those numbers trail the S. M. P. Five hundred. That is because, as you're here, Christiano explain a moment, most of the company's revenues come from phones.

Cock makes central processors for smart phones and connectivity chips, and IT gets about seventy five percent of its revenues from handsets. And that's a big market but not a superfast growth market. And that helps explain why call com stock trades at less than fifteen times projected earnings and video goes for more than fifty times projected earnings.

In other words, there's only so many phones people .

can have unless we evolve an additional mouth and two more hands. I don't think volumes on smart phones are onna push my child than they are now, but you can get rising content on phones. And call come is still a growing company, is the company that grew its revenues by nine percent over the past year to just under thirty nine billion dollars, is certainly a profitable company.

One issue facing cocom is the key customers include companies like apple and samsung. And apple samsung are big enough to have the finances and the manufacturing know how to make some of their own chips and accurate the potential to replace core com for content going forward. Apple or anounced plans to replace cocos five g chips in two of its iphone models next year that could create some lost revenue that the company will have to overcome.

I ask Christiano about that, your hearing answer. He also has a plan to reduce core comes phone revenue from seventy five percent of total revenue today to around fifty percent by the end of the decade. And that evokes making a lot more money in cars and factories and headsets and the internet of things and will hear about that and edge computing and work call on fits in.

In my neighbourhood, there's a bunch of have you seen the coolers on wheel?

I haven't seen them. Now.

the robots, at first I thought there, you know, A I robots delivering people food IT. Turns out there is a.

don't say organ transplants, don't say these robots .

come and .

perform a surgery.

They are going to take your appendix or they pick up food, deliver them to people's houses ah but it's not A I driving them, it's people on a playstation controllers sitting at home.

So IT gamers, yes. So all those video gamers have found a way to become productive members, the economy.

some of them at least.

Ah okay.

let's get my conversation with Christiano. He stopped into berens officers, midtown manhattan. We spoke there last time I saw him. He had a go tea, kind of a substantial goat and a mustache.

At this time his cheeks were filled in with a full beard and as a roden beards, I think that serves as kind of a metaphor for what is looking to do with the company to get the stock Price growing. He's GTA do with computer chips. What is done with facial hair.

He needs to expand richly in the new areas. Some of the details of how quickly that can happen are fuzzy, but that doesn't mean is not good news for the stock. We will circle back to that point at the end. For now on of my conversation with Christiano after this quick break, right?

Jackson going to show me that in here, me some ads in right .

now will be right back. Your business .

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by four side fund services. L, L, C, welcome back. Let's play a part of my recent conversation with cocom C E O, Christiano among, nice to see you again.

Christiano, nice to see you too. So you've been talking with folks for your investor day. Um your company gets about three quarters of its revenue from phone handsets. Correct me from wrong on that and you have a plan to diversify that. So you can talk me about that if .

you would absolutely look when, uh, when we had an investor day in two thousand and twenty one, there was kind of the year I became CEO. We realize that there was uh, a lot of markets that could benefit from our technology. We have always been the most focus company in mobile, and that's why mobile is our core business, is a major the revenue.

But the technologies we have developing our company, we realized that could be beneficial for industries they're going transformation like automotive. I think what happened in personal computing, industrial, special computing. So we put at that time a plan to diversify ingrow the company and would be executing uh, on that plan.

So what what we did yesterday, which was like a two thousand twenty four and yesterday to provide the score card, how have we done in this strategy? And I think we done very well on on automotive. I think we build uh probably the leading position in automotive across companies have a forty five billion dollars pipeline.

We are the entering the P C. Now with the probably the most a powerful processor for S B C changes to A I with microsoft copilot lus. We have built a position for a virtual reality, augmented reality mix as well as industrial. So what we did yesterday, we show investors look at where what we done so far, and we put a time line by two thousand to win. Tina, we expect to have about fourteen billion dollars of known hands er revenue uh and when you when you look at at the totally I O T plus outer space about twenty two i'm so twenty two no hand revenue which gets the company as we get any deducted to be fifty fifty um I full of diversified company where mobile oe still growing is gonna be about fifty percent of the total revenue.

I saw one wall street report. This is an analyst who has kind of a neutral rating on on the company. He wrote um we estimate fifteen billion dollars drag from apple slash sams on share laws, making a difficult to model top line growth over the next three years.

He's talking, I believe, about apple and samsung making more of their own chips. But but meanwhile, the estimates show revenue growth for your whole company over the next year. So in the years ahead, is the your expectation that the new business that you're bringing in will more than offset the fact of some these big phone companies making more chips in house?

I don't understand his samsung comment because we are not losing share on samsung x, where on the positive to rejectors share and sung and I think uh, we probably expect uh to historical have much higher share that we had in the past. Uh, we have been very clear that um we we expect that the apple beyond the contract that we have who start coming off the model, we have been very clear.

The story is we thought will have uh we being very transparent every time we have a contract with apple, we had disclosed when the end we thought we will start losing someone. Apple business twenty three that didn't happen. We thought twenty four, they didn't.

The latest contract we have, we expected about twenty percent of a share in twenty six. And uh, no, will that be the case? Will that be different? Will will they renew? We don't know. But the reality is what we have done is as we have the plan of growth and university the company, we actually more than replace the apple revenue. So the company is still have the ability to have annual growth, uh, as apple comes off the model and especially because of how successful the growth and university strategy on alternative have been.

When I look at your stock chart this year, I said, well, that looks like a fine performance for the stock, although the S M P five hundred is up even more because it's being pulled higher by some of these artificial intelligence companies. Um your stock goes for about fifteen I saw recently just a right around fifteen times forward earnings estimates.

If you take a company like in video, obvious a total different company trading for more than fifty times earnings because of the A I excitement. Do you think that investors have a right about your I mean, they obviously know everybody he's looking for A I stocks and your company is is not the first name that comes that are mind you think that investors are right in the assessment? Are you becoming more of an an AI company?

Look, that's the right question. And um I think there are two separate topics. I think we're a talking about IT.

The first topic because a lot of our revenues the majority of our revenues is mobile. We get mobile multiples because mobile market is incredible. Market is one. The largest consumer economic market is the word. But IT doesn't grow because all of us have a phone.

So is more of replacement rate market at this point? Maybe maybe uh, I know for sure that decades, I just know the year um but we could see in one year, in two years, three years, we don't know going to see an AI upgrade cycle. We create a super cycle on phones.

But right now, phones grows with GDP in replacement rates. I think people buy a new phone of a few years. So because mobile doesn't growth, there's a mobile multiple and revenues. However, our auto revenue or P C revenue or industry revenue or uh mixed reality and vital reality a revenue, all of those networking revenues are market are growing. The more than we diversify the company, more we see a multiple expansion.

That's the first part to that's why he is so important for the court for welcome to increase the percentage of a revenues that are from growth of markets because that's kind of rerate the company and change the company multiples. The second part of the um of the question, there's a little bit more interesting look there is this uh incredible growth of A I and right now you see a lot of that happening in the data center world of the data center. But there's one thing and we did talk about in every day, which is very interesting, happened if you think about chat B T three point five and when I launch, you were incredible.

I think, you know everybody saw that he talks like a response, like a human. He has all this data. Uh, one year later, lama uh from meta um IT was had the same quality of two point five, but lama um IT was, uh, few billion parameters now, hundreds of billions of parameters.

You can run that on the phone. You can run that on A P C. You can run that on a bashful of your car. So we are position ourselves to be the company that is going to run A I at the edge when I hear that phrase.

edge computing. This is what we're talking about now.

B, C cars, everything that has a human uh, connected to IT.

So explain to us if you were the importance that that because what I think about you know, before the internet was the thing right in the early one thousand and nineties, we had to have these powerful computers because we want to run the latest version of windows. And then for a while, I didn't kind of matter, because every all the hard thinking happens somewhere on the internet. IT didn't happen on our local machine.

And now all of a sudden, with A I everyone's talking about edge computing, suddenly our local machines need to be more powerful somehow, for some reason. why? What is I gonna do for us?

Look, um I can talk to you about that all day, but i'm going to try to summarize a few examples. First of all, when you run A I at the edge and let me define edge. Edge is your phone, is your, is your glasses, is your ear buds, is your watch, is your PC, is your car, is is, is an industrial equipment and robot.

Everything that is not the cloud and and that's where our silicon is going. We're now in every single market at the edge. When you run things at the edge, you have different use cases at the cloud.

And the best way for me to describe that to you with A I is a different examples. So let's start for car. So one of the use cases were working with a many of our customers in the automotive industry.

For example, you train a model on all the service database of a car model. Do you have a car model? They make her of the car, knows everything about the car from all the dealerships, all the service records.

You train a model on that. So in driving a car, a light come up. U.

S. The Carter court tell you, this is what happened. This is what you need to do.

You can drive. You cannot drive. You need to replace this part.

And then i'll be able to schedule that for you. That's a different use case that happens. I diet.

Now let's talk about what microsoft doing. For example, they just announced a sweet of features for the copilot lus running on qual consilium on. They have a feature which is call recall.

The way recall works, everything you do in your computer and you work in on your computer, the machine is indexing everything. So then you can just sell the machine. Um I remember seeing a powerful point. They had a had the graph to talk about the world conversation revenue. I'm going to say this is the dog man is or saw a video on youtube that you will taught me how uh to grow a beard and he said, this is the video I .

see you doing quite well. Grow way, go so so .

those are things which are personalizes you and and he gets even more excited when to think about phone, for example because I also one of the least understood uh, capabilities s of ai. We think about A I as you go in, you do a search or you have to know all, do all, I think model, they ask a question. But the reality is a little bit different.

If you have an eye running on the device of the edge all the time, uh, everything you you, how you interact with the computer, the computer now understands human language. So he changes how you fundamentally think about what an application is like. A great example that I often provide is like a banking APP.

Uh, you have we have this construct of apps in our head because of the four g traction. But you could have an A I that most the credence for your bank and you just ask was my baLance is your baLance? But the last five transactions, I took a photo of this bill.

Can you pay this bill for me? Those are completely different evolution of AI. When you think of ai redefining applications in being part of the user interface.

are we in at some kind of inflection point here? What what I mean is I have heard for many years about the internet of things, and I can see the proliferation of chips all around me. Now you're talking about edge computing, and the chips need to be more powerful, smarter. When do we come to the point where investors are going to be more excited about this? And and when you think long term about call comment about your potential, how big of a company you think this can be?

I am convinced we have selection point right now. Um and we we outlined that this geni at the edge is a accelerator for all of our business, is an inflection point. Force more glasses because now you have you can wear glass that what you see the glass, see what you hear the glass here.

And you have this ai wearable AI assistant with you all the time. I believe phones are gonna fundamentally change. Pcs already changing the car uh is being a revolution, I think for a different in the car.

And I think what's gonna en is welcome is the company today that is running A I at the edge. We are we have uh, developed technology position ourselves, have been expanding in to all of those markets. So we think as A I are go to the edge, this is the company that has want the biggest opportunity to benefit from. And one of the things we at least show in our yesterday, we had we had some testimonials from amazon from indigenous testimony from SATA and the both said, um you actually create the A I on the cloud and he gets deployed not only the cloud but also at the edge and I think that's the opportunity for calm.

Thank you, Chris. Diana, quote com is laid out some specific revenue goals for each of these new markets that is growing into example, automotive. IT wants to be over four billion dollars by fiscal two thousand twenty six, and then IT wants to have that number double over the following three years to eight billion.

And what he calls internet of things, that includes PC factory robots, mixed reality headsets, airboat wifi boxes and so on. IT wants to go from five point four billion dollars now to fourteen billion dollars by fiscal two thousand twenty nine. So those are specific targets, but we don't yet know, of course, what the actual growth rates will look like.

Even the bulls on the stock aren't quite sure. Here's b of a securities analyst to liani. He writes cocom needs to take share in these markets. These markets needed develop to support cocos long term targets, of which th Epace a nd m agnus d e i s u ncertain.

But leoni none's rates the stock at by, and he has a Price target of two hundred forty five dollars that's more than fifty percent above where the stock traded recently. Sad came come up with that figure. Well, is his call come is worth twenty two times his estimates for earnings for the year, and that's pretty close to a market multiple.

He says the coal deserves a higher valuation than intel because while both companies could benefit from more edge computing, call come is Better position because its power efficient, ARM based cheap designs. Those are particularly well suited the edge computing. But he says the stock doesn't quite deserve the multiple les for companies that are closer to the A I data center, like advance mico devices and broadcom.

And of course, in video, you heard Christiano say that he feels the company is at an inflection point right now, the stock drop six percent after the investment day presentation. So at least some members of the audience are holding out for a little more proof. And that is cocom.

I want to thank Christiano for stopping by and thank all of you for listening. Jackson producer jack, any more fun facts? The collar robots.

not really a fun fact. But as looking for more information and IT turns out, people are kicking them over and stealing the food.

That sounds about right.

You can subscribe with .

the podcast and apple podcast spotify wherever you listen. If you have a question you like answer on the podcast, just type e on your phone. Use the voice memo wep.

You can send IT to jack out how that's H O U G H at burns dot com. That's IT for this week. Hey, let's not kick robots out there.

All right? These things around the internet, they can remember. They can probably like sand.

Your red is probably know who you are if this situation goes full. Terminator, eight years from now, you don't want to be that guy. All right? If you see a kicked cooler robot help IT back onto its feet, or trees or wheels, or whatever they are.

i've noticed they been putting google eyes on them. I don't know. Make them be more.

That is only a matter time before they start drawing glass on. See next week.

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