Apple patent renewal has competitive implications for Qualcomm, Astera Labs, Arista, and other interconnect suppliers in AI chip design.
Qualcomm just renewed a patent license agreement with Apple despite Apple phasing out its chip purchases—a development that crystallizes why I keep adding to my position.
On September 24, 2026, Qualcomm announced the renewal of its global patent license agreement with Apple, effective April 1, 2027, with terms undisclosed. The timing tells the story. Apple's chip business with Qualcomm is contracting sharply. In July, the CFO indicated Qualcomm's share of the upcoming iPhone launch would be "materially lower than our prior estimate of 20%," with Apple product revenue forecast to fall roughly 50% from the September to December quarter. Apple is building its own modems, yet it continues to pay for access to Qualcomm's wireless technology patents. Qualcomm's licensing unit, QTL, generated $1.28 billion last quarter at a 69% earnings-before-tax margin. Apple can stop buying Qualcomm chips, but it keeps paying Qualcomm to use wireless technology. That dynamic anchors my thesis.
Three developments justify staying a buyer. First, growth beyond handsets is already materializing. Automotive revenue hit $1.59 billion, up 61%, marking the company's 23rd consecutive quarter of double-digit growth. BMW designated Qualcomm as its lead compute silicon partner. Management expects non-handset growth to accelerate from 24% in fiscal 2026 to greater than 60% in fiscal 2027, stating this increase "will replace the entire Apple product revenue within the year."
Second, shareholders are paid while waiting. In fiscal 2025, Qualcomm generated $12.82 billion in free cash flow and returned $12.60 billion to shareholders. The quarterly dividend increased from $0.89 to $0.92, backed by a new $20 billion buyback authorization.
Third, the valuation works on cash. A 35 times earnings-to-price ratio appears steep, but a $5.7 billion non-cash tax charge distorted GAAP earnings. On cash metrics, the stock trades at 15.34 times free cash flow, yielding 6.52% on free cash flow and 1.94% on dividends, with net debt at just 0.61 times EBITDA.
Broadcom is the obvious AI chip alternative, with AI semiconductor revenue up 221% last quarter, yet investors have already priced that in. At roughly $1.7 trillion in market capitalization, Broadcom trades at approximately 43 times trailing four-quarter free cash flow against Qualcomm's 15.34 times. Broadcom's disclosures cite dependence on a limited number of large AI customers and heavy debt as risks. I prefer paying less for growth still in its early stages.
Handsets remain the largest segment, yet revenue fell 20% to $5.09 billion. Memory costs are pressuring phone makers, China trade exposure presents risk, and non-GAAP earnings per share of $2.21 missed the $2.22 consensus, ending a six-quarter beat streak. Management projects Android revenue will decline 20% this year.
This pain is real and material. Yet it has not broken my thesis. Qualcomm is passing through double-digit price increases, says China revenue bottomed in the June quarter, and forecasts a double-digit sequential rebound.
Revenue from two hyperscaler custom silicon programs launches in the December quarter. Data center revenue is targeted at $5 billion in fiscal 2027. An Amazon data center collaboration was announced in September. The stock declined 7.15% over the past week to $184.10, and I treated that dip as a chance to add.
Apple is moving its chips in-house and still renewed the patent license. As long as Qualcomm keeps collecting those royalties, I plan to remain a buyer.