QCOM is undervalued and the preferred buy; DCF suggests $283 fair value vs $170 price, implying 67% upside in 12-18 months.

Marvell and Qualcomm are preparing to capitalize on the growing demand for AI data centers . At the same time, Qualcomm is investing in the innovation, research and development of computing solutions for data centers, and accelerated central processing units (CPUs) aimed at bridging the current gap between the memory market and CPUs and graphics within data centers.

Based on all of the above, which of the two stocks is better to buy now: Qualcomm or Marvell? Looking at the revenue profile, Qualcomm is a much larger company compared to Marvel , with revenues more than four times those of Marvel, at $44 billion versus $ 9.45 billion for Marvel.

Meanwhile, Qualcomm has been innovating, researching and developing a product, a central processing unit for data centers, and has a major customer, Meta Platforms, but it is still in the development phase of this technology.

This technology still does not generate significant sales . It is estimated that Qualcomm will not start generating any revenue until mid-2027, and probably will not generate any significant revenue from these new data center products until late 2028.

We can observe the cyclical nature of the semiconductor industry when we look at the operating profit margins of both Qualcomm and Marvell. Qualcomm's profit margins have fluctuated between 20% and 30% over the past decade, reaching 23.5% recently.

Qualcomm's trajectory is downward , as it will take some time before data center revenues start to flow.

At the same time, increased spending on data centers has driven up memory prices , creating a major obstacle for the smartphone industry , a key category from which Qualcomm generates significant revenue.

Therefore, its profit margins are likely to decline before they start to rise, and that probably won't happen before 2027. At 16.8%, it is not too far off Qualcomm, and it is reasonable to assume that Marvell's operating profit margin will exceed Qualcomm's margin within the next twelve to twenty-four months.

But I think this increase will be temporary, and when Qualcomm starts generating revenue from data centers, and if memory prices reach equilibrium starting in 2028, Qualcomm's operating profit margins are likely to surpass Marvell's in the long run.

Similarly, when we measure the return on invested capital, we find that Qualcomm has the best figure, but Marvell improves significantly more .

At 23%, Qualcomm's return on invested capital exceeds its weighted average cost of capital, which is a good baseline, while Marvell's 12.61% barely matches its average cost of capital.

Again, it is reasonable to assume that Marvel's return on invested capital will surpass Qualcomm's in the near term, but over longer periods of time, I expect Qualcomm to achieve a better return compared to Marvel.

Therefore, looking at the rating tells an interesting story . As I mentioned earlier in the video, we noticed that Marvell is already benefiting from the AI boom, while Qualcomm is facing headwinds as a result of this boom and its effects on the memory market, which impacts the smartphone industry.

Marvell’s market value is almost double that of Qualcomm when measured on a forward price-to-earnings basis, reaching 31.7, which is almost double Qualcomm’s valuation of 16.7.

Now, I agree with the market that Marvell should be traded at a higher valuation compared to Qualcomm , but I think the level of that premium, which is almost double Qualcomm's value, seems excessive.

Therefore, I also like to look at the valuation using the discounted cash flow model, and for Qualcomm stock, I calculated a fair value of $283 compared to its current market price of $170.

It appears there is a 67% upside opportunity for Qualcomm shares over the next 12 to 18 months. Therefore, I get a similar valuation result whether I look at future earnings multiples or discounted cash flow models ; Marvell's stock valuation appears to be overvalued, while Qualcomm's valuation appears to be undervalued.

So, if I had to make a decision between these two companies today, I would choose Qualcomm as the better stock to buy.