Key Takeaways
IBM is gaining from hybrid cloud and AI demand, supported by the HashiCorp acquisition.Qualcomm expands in 5G, automotive, gaming and AI PCs, but faces stiff chip market competition.IBM trades cheaper than QCOM, with a stronger price performance and a steadier free cash flow outlook.
International Business Machines Corporation (IBM Quick QuoteIBM – Free Report) and Qualcomm Incorporated (QCOM Quick QuoteQCOM – Free Report) are tech legacy firms pivoting toward cutting-edge growth areas of either cloud computing and AI (artificial intelligence) workloads, or chips and patent-driven innovations. IBM offers cloud and data solutions that aid enterprises in digital transformation. In addition to hybrid cloud services, the company provides advanced information technology solutions, computer systems, quantum computing and supercomputing solutions, enterprise software, storage systems and microelectronics.
Qualcomm offers high-performance, low-power chip designs for mobile devices, PCs, XR (Extended Reality), automotive, wearable, robotics, connectivity and AI use cases. The company boasts a comprehensive intellectual property portfolio comprising 4G, 5G and other technologies. Qualcomm’s brands include Snapdragon systems-on-chip, FastConnect Wi-Fi and Bluetooth systems, and Qualcomm-branded 4G, 5G and IOT equipment. The company is currently integrating on-device generative AI into all of its product lines.
Let us delve a little deeper into the companies’ competitive dynamics to understand which of the two is relatively better placed in the industry to warrant a place in your investment portfolio.
The Case for IBM
IBM is poised to benefit from healthy demand trends for hybrid cloud and AI, which drive the Software and Consulting segments. The company’s growth is expected to be aided by analytics, cloud computing and security in the long term.
With a surge in traditional cloud-native workloads and associated applications, along with a rise in generative AI deployment, there is a radical expansion in the number of cloud workloads that enterprises are currently managing. This has resulted in heterogeneous, dynamic and complex infrastructure strategies, which have led firms to undertake a cloud-agnostic and interoperable approach to highly secure multi-cloud management, translating into a healthy demand for IBM hybrid cloud solutions.
In addition, the buyout of HashiCorp has significantly augmented IBM’s capabilities to assist enterprises in managing complex cloud environments. HashiCorp’s tool sets complement IBM Red Hat’s portfolio, bringing additional functionalities for cloud infrastructure management and bolstering its hybrid multi-cloud approach.
Despite solid hybrid cloud and AI traction, IBM is facing stiff competition from Amazon.com, Inc.’s (AMZN Quick QuoteAMZN – Free Report) AWS and Microsoft Corporation’s (MSFT Quick QuoteMSFT – Free Report) Azure. Increasing pricing pressure is eroding margins, and profitability has trended down over the years, barring occasional spikes. The company’s ongoing, heavily time-consuming business model transition to the cloud is a challenging task. Weaknesses in its traditional business and foreign exchange volatility remain significant concerns.
The Case for QCOM
Qualcomm is well-positioned to meet its long-term revenue targets, driven by solid 5G traction, greater visibility and a diversified revenue stream. The company is increasingly focusing on the seamless transition from a wireless communications firm for the mobile industry to a connected processor company for the intelligent edge.
Qualcomm is witnessing healthy traction in EDGE networking, which helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation PCs, wearables and tablets. The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are also fueling emerging automotive industry trends such as growth of connected vehicles, the transformation of the in-car experience and vehicle electrification.
The company is strengthening its foothold in the mobile chipsets market with innovative product launches. It had extended its Snapdragon G Series portfolio with the addition of next-generation gaming chipsets, Snapdragon G3 Gen 3, Snapdragon G2 Gen 2 and Snapdragon G1 Gen 2 chips.
Samsung, one of the major smartphone manufacturers, has deployed the Snapdragon 8 Elite Mobile Platform for its premium S25, S25 Plus and S25 Ultra devices. It is also placing a strong emphasis on developing advanced chipsets for the emerging AI PC market. The company has inked agreements to acquire MovianAI to augment its efforts in fundamental AI research.
Despite efforts to ramp up its AI initiatives, Qualcomm has been facing tough competition from Intel in the AI PC market. Shift in the share among OEMs at the premium tier has reduced Qualcomm’s near-term opportunity to sell integrated chipsets from the Snapdragon platform.
The company is also facing stiff competition from Samsung’s Exynos processors in the premium smartphone market, while MediaTek is gaining market share in the mid-range and budget smartphone market. Qualcomm’s extensive operations in China are likely to be significantly affected by the U.S.-China trade hostilities.
How Do Zacks Estimates Compare for IBM & QCOM?
The Zacks Consensus Estimate for IBM’s 2025 sales implies a year-over-year rise of 6.4%, while that of EPS indicates growth of 7.7%. EPS estimates have been trending northward (up 1.7%) on average over the past 60 days.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Qualcomm’s fiscal 2025 sales suggests year-over-year growth of 12.4%, while that for EPS implies a rise of 16.1%. The EPS estimates have been trending northward (up 1.1%) over the past 60 days.
Image Source: Zacks Investment Research
Price Performance & Valuation of IBM & QCOM
Over the past year, IBM has gained 24.7% compared with the industry’s growth of 24.6%. Qualcomm has lost 0.9% over the same period.
Image Source: Zacks Investment Research
IBM looks more attractive than Qualcomm from a valuation standpoint. Going by the price/sales ratio, IBM’s shares currently trade at 3.46 forward sales, slightly lower than 3.86 for Qualcomm.
Image Source: Zacks Investment Research
IBM or QCOM: Which is a Better Pick?
Both IBM and Qualcomm carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Both companies expect their sales to improve in 2025. Qualcomm has shown a relatively steady revenue growth for years, while IBM has been facing a bumpy road. In terms of price performance, IBM has outperformed Qualcomm. IBM is also trading relatively cheaply compared with Qualcomm.
With a stable free cash flow and software-driven revenues leaning toward enterprise SaaS/AI transformation, IBM appears to be comparatively better placed than Qualcomm. Consequently, IBM seems to be a better investment option at the moment.