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Semiconductor stocks have been on a rally in recent weeks and in this video I'm going to compare two. Broadcom and Qualcomm are two of the biggest semiconductor stocks in the market and investors want to know which one is the better investment at current market prices. I'll compare these two head-to-head on revenue and profitability and then we'll look at valuation across a couple of different metrics to determine which one I think is the better buy.
I want to start with the revenue growth and I'm looking back three years and looking at the compounded annual growth rate. And in this figure you can see the divergence. In the blue you have Broadcom which has recently accelerated revenue growth and it's up to 24% over a compounded annual growth rate over three years.
Meanwhile, Qualcomm's compounded annual revenue growth rate has decelerated meaningfully and reached just 0.1%. Looking forward, however, they also have similarly differing prospects. Broadcom has signed massive deals to help companies like Alphabet develop their proprietary chips for the data center and revenue growth is likely to continue booming at Broadcom.
Qualcomm, meanwhile, faces significant headwinds in its primary market. Smartphone sales are likely to be flat or decline in 2026 due to rising component prices. Data center build-outs are causing component prices for CPUs, GPUs, memory and storage to all increase and it's creating supply shortages.
Qualcomm's [snorts] primary industry is the smartphone and so that will likely cause headwinds at the business. However, the company is expanding into new categories and making great investments and making great progress especially in automotive and the PC industry. But what has investors most excited about Qualcomm is the recent announcement that it's partnering with companies to expand into the data center as well.
The data [snorts] center market is the most prolific in any market right now with an estimated $750 billion in spending just from the biggest four companies. And so the entry of Qualcomm into this industry has investors excited. The next metric I wanted to compare these two head-to-head is on profitability and more specifically I'm looking at the operating profit margin.
There are several profit margins you can consider, the gross, the net profit margin, you can consider returns on invested capital, return on equity, return on assets. The one I like to use most frequently is the operating profit margin. And sometimes I'll use other valuation metrics and overall I've looked at all of these valuation metrics when comparing these companies and evaluating these companies, but in this specific video I'm choosing to share just this one with you all here.
And according to this metric, Broadcom and Qualcomm have solid operating margins, but Broadcom is better than Qualcomm in this metric. In the most recent trailing 12-month period, Broadcom generated an operating margin of 40%. Furthermore, Broadcom's management expects these margins to continue rising as the recent acquisition of VMware shortly caused its profit margin to decline there.
You notice it fell to 26.1% in 2024. Typically, when a company makes an acquisition in the short term, it has a negative impact on profitability. And then if the acquisition is made successfully at reasonable prices and synergies are realized, it has the impact of increasing profit margins. And I will say Broadcom has been one of the few companies that's been an effective acquirer.
It's paid reasonable prices and has been able to digest those acquisitions effectively. Qualcomm meanwhile saw its margin increase to 27.9%. And that margin is also likely to increase as Qualcomm expands into new industries and especially the data center category. So now that we looked at performance metrics head-to-head, let's look at valuation.
And on a forward price to earnings basis, Broadcom is considerably more expensive, more than 50% to be precise. It's trading at a forward price to earnings of 32.65 compared to Qualcomm, which is trading at a forward price to earnings closer to 20. But as we saw with the revenue growth, that's better, the profit margin, that's better.
Broadcom deserves the premium valuation compared to Qualcomm. Now you could argue that the premium is too much, but I don't think you can argue that Broadcom deserves the premium. So it's just a matter of how much of a premium does Broadcom deserve compared to Qualcomm. Similarly, when I look at the discounted cash flow valuations, I get the idea that Qualcomm is better valued.
Uh Broadcom is trading at $429 a share, whereas I calculated an intrinsic value of 371. So this would suggest that Broadcom looks slightly overvalued according to this metric, or you could say fairly valued after incorporating a margin of safety. Meanwhile, Qualcomm's stock is trading at $201 per share with an intrinsic value of 224.
So Broadcom's stock looks slightly undervalued or fairly valued after accounting for a margin of safety. So, which one of these two would I rather buy today? For me, this is a close call. It's a difficult decision. I like both of these companies. I have them both rated as uh two of the top 15 stocks you could buy right now.
So, it's a difficult decision to pick one out of these two. But if I had to pick today, I think I would pick Qualcomm ahead of Broadcom as the better stock to buy.
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