Qualcomm slides 30.6% as handset slump tests auto and AI growth

Qualcomm's shares have fallen 30.6% in 12 weeks as handset revenue drops 20% and Apple's in-house modem erodes its largest business, forcing investors to weigh whether automotive and data center growth can fill the gap.

Qualcomm expects fiscal 2026 Android handset revenue to decline about 20%, with the annual earnings impact exceeding $1.50 per share, management said in its fiscal third-quarter report.

QCT handset revenue fell 20% year over year to $5.09 billion as OEMs cut chipset purchases and worked down inventory during memory supply constraints and higher memory prices. Apple has introduced its first in-house cellular modem, the C1, in the iPhone 16e, and Qualcomm expects its share of the upcoming iPhone launch to fall materially below its prior 20% assumption.

Automotive revenue rose 61% to a record $1.59 billion, with Qualcomm raising its fiscal 2026 exit outlook for annualized auto sales to about $7 billion. Two custom silicon engagements with hyperscalers begin generating revenue in the December quarter, targeting $5 billion in data center revenue by fiscal 2027 and $15 billion by fiscal 2029.

Auto Revenue Jumps 61% as Data Center Targets $15 Billion

Stellantis expanded its multi-year collaboration with Qualcomm in May to use Snapdragon Digital Chassis solutions across cockpit, connectivity and driver-assistance systems. Platform wins with Stellantis and BMW support management's view that automotive growth is shifting from individual sockets toward multi-generation engagements.

The data center push carries a profitability trade-off. Management expects initial custom silicon revenues to dilute QCT gross margin by 1.5 to 2 percentage points, even as pricing actions are intended to offset higher input costs over the next couple of quarters. Qualcomm's completed $2.4 billion Alphawave acquisition adds high-speed connectivity, custom silicon and chiplet capabilities, putting it in competition with Broadcom and Marvell for custom AI infrastructure.

Qualcomm is targeting inference rather than large-scale AI training. Its AI200, AI250 and AI300 systems are designed around power efficiency, memory capacity and total cost of ownership rather than peak compute. The company's agreement with HUMAIN targets 200 megawatts of Qualcomm AI200 and AI250 infrastructure starting in 2026, and its Dragonfly C1000 server CPU, built on the Oryon architecture from the Nuvia acquisition, has secured a multi-generation agreement with Meta for production starting in 2028.

The inference focus plays to Qualcomm's strengths. Smartphones operate under strict battery and thermal constraints, forcing the company to maximize performance per watt, the same metric that increasingly matters in AI data centers as power and cooling become major constraints. More than 2,000 gigawatts of generation and storage capacity remains in the U.S. interconnection queue, and securing high-capacity grid connections can take 36 to 84 months.

Valuation Discount vs. Execution Risk

QCOM trades at 4.0 times trailing 12-month enterprise value-to-sales, below its five-year median of 4.1 times. Its 15.9 times forward 12-month price-to-earnings multiple is also below the five-year median of 16.6 times.

The discount offers some valuation support, but it does not remove execution risk. Handset uncertainty, customer insourcing and rising investment spending leave investors weighing a cheaper multiple against a changing earnings mix. Qualcomm's smartphone and licensing business generated close to $10 billion in operating free cash flow, giving the company time for its next growth engine to develop.

Earnings are projected to decline from about $10.50 per share in fiscal 2026 to an estimated $10.20 in fiscal 2027, according to Trefis estimates. Even on those depressed earnings, the stock trades at roughly 16 times forward earnings. Qualcomm currently carries a Zacks Rank #3 (Hold), with a Value Score of C, Growth Score of D, Momentum Score of F and VGM Score of F. That combination supports patience until earnings and price trends strengthen.

This article is for informational purposes only and does not constitute investment advice.