Experts Say Qualcomm’s Handset Revenue Dip Shouldn’t Overshadow Growth in AI, Auto and IoT

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Earnings season is in full swing, with major technology companies releasing quarterly results one after another. This time, however, the market has been highly selective. Even companies that reported strong results have struggled to win over investors as concerns about heavy artificial intelligence (AI) spending and elevated expectations continue to weigh on sentiment. The dynamic has been especially pronounced across semiconductor stocks, where investors are scrutinizing capital expenditure timelines and the pace at which AI-related revenue translates into earnings growth. Qualcomm (QCOM) was the latest company to face that pressure after reporting fiscal 2026 third-quarter results on July 29.

Although the chipmaker delivered another solid quarter overall, the report exposed a few weak spots that were enough to pressure the stock. The biggest issue came from Qualcomm's core semiconductor business, Qualcomm CDMA Technologies (QCT), where handset revenue fell nearly 20% year over year (YOY). The decline was driven by ongoing memory supply shortages and a faster-than-expected loss of modem share at Apple (AAPL).

Qualcomm said the impact will be more pronounced in fiscal fourth quarter, after its share in Apple's next iPhone lineup came in materially below earlier expectations. Apple has been steadily rolling out its in-house modem across more iPhone models as part of a long-term plan to reduce dependence on third-party suppliers, a strategy that builds on the iPhone maker's years of investment in custom silicon design, including its transition of Mac computers to Apple-designed processors. Adding to investor concerns, Qualcomm issued softer-than-expected fourth-quarter guidance, citing persistent supply shortages for PC components, especially memory. The mixed report prompted investors to sell the stock, but not every Wall Street analyst is worried.

Many analysts argue that the market is focusing too heavily on Qualcomm's near-term handset weakness while overlooking the company's faster-growing businesses in AI data centers, automotive and the Internet of Things (IoT). The question for investors, they say, is whether the recent pullback reflects a buying opportunity rather than a reason for alarm.

About Qualcomm Stock

For decades, Qualcomm has been a central player in the mobile revolution. Based in San Diego, California, the semiconductor company rose to global prominence by developing modem and processor technologies used in smartphones around the world. Its Snapdragon chips have become closely associated with premium Android devices, while its large portfolio of wireless patents has made Qualcomm one of the most influential companies in the communications industry.

Today, Qualcomm's business extends well beyond smartphones. Through its Qualcomm CDMA Technologies (QCT) segment, the company designs semiconductors for smartphones, AI-powered PCs, automotive platforms, networking equipment and IoT devices. Its Qualcomm Technology Licensing (QTL) business generates high-margin royalty income by licensing its wireless technologies.

As AI demand accelerates, Qualcomm is also expanding into edge AI, autonomous vehicles and custom AI chips for data centers, positioning itself to take part in some of the semiconductor industry's fastest-growing areas. The push into data center AI chips represents a notable strategic shift for a company historically dependent on mobile, as it seeks to leverage its expertise in power-efficient processing to compete in a segment where hyperscale customers are increasingly looking for alternatives to dominant suppliers. Despite that strategic shift, the stock has struggled this year. Qualcomm, which has a market capitalization of $159.79 billion, has fallen 13.36% year to date (YTD) and 6.83% over the past 12 months. That has trailed the broader S&P 500 Index ($SPX), which has returned 9.2% in 2026 and 17.5% over the past year.

The weakness reflects a combination of near-term challenges that have clouded the outlook. Investors have grown increasingly concerned about Qualcomm's faster-than-expected decline in Apple revenue as the iPhone maker transitions to its own modem chips, slower smartphone and Android demand, and persistent memory and manufacturing cost pressures that are squeezing margins.

The company's mixed third-quarter report only added to those concerns, sending the stock down 2.62% in the following session. Qualcomm now trades roughly 43% below its record high of $259.92, reached in May, underscoring how cautious investors have become despite the company's expanding opportunities beyond smartphones.

Inside Qualcomm's Q3 Earnings Report

Qualcomm's fiscal 2026 third-quarter results showed a mixed picture. The chipmaker comfortably beat revenue expectations, but earnings came in just below Wall Street forecasts as margin pressure weighed on profitability. Total revenue for the quarter was $9.95 billion, down 4% YOY but ahead of analysts' estimates of about $9.71 billion. Non-GAAP earnings per share came in at $2.21, down 20% from a year earlier and slightly below the Street's estimate of $2.22.

The largest drag came from QCT, Qualcomm's core semiconductor segment. Revenue in the division slipped 5% YOY to $8.50 billion, mainly because of weakness in handsets. Handset revenue fell 20% YOY to $5.09 billion, reflecting softer smartphone demand, memory supply constraints and a faster-than-expected decline in Apple-related business.

Even so, Qualcomm's diversification strategy continued to show results. The automotive business posted another strong quarter, with revenue rising 61% YOY to $1.59 billion, driven by growing demand for connected and software-defined vehicles. The IoT division also remained resilient, with revenue increasing 9% YOY to $1.83 billion. Together, automotive and IoT revenue rose 28%, reinforcing Qualcomm's long-term effort to reduce dependence on smartphones. The automotive growth trajectory reflects a broader industry trend as automakers increasingly embed advanced computing, connectivity and driver-assistance features into vehicles, creating demand for the kind of system-on-chip platforms Qualcomm supplies.

Meanwhile, the high-margin Qualcomm Technology Licensing (QTL) business generated $1.28 billion in revenue, down 3% YOY as softer cellular device volumes weighed on licensing income. Still, the segment maintained an operating margin of nearly 69%, highlighting the strength of Qualcomm's patent portfolio. The company also returned $2.3 billion to shareholders during the quarter through dividends and share repurchases.

Looking ahead, management expects fiscal fourth-quarter revenue to range from $9.7 billion to $10.5 billion, while non-GAAP EPS is projected between $2.05 and $2.25. The guidance points to a cautious outlook amid ongoing supply chain and handset market challenges.

Despite those near-term headwinds, Qualcomm remains confident about its longer-term growth plan. CEO Cristiano Amon said the company is well positioned to execute on its strategy. Management now expects non-handset revenue to reach $40 billion by fiscal 2029, nearly double the target it set in November 2024. Qualcomm also expects YOY growth in its non-handset businesses, including its emerging data center segment, to accelerate from 24% in fiscal 2026 to more than 60% in fiscal 2027. Amon described that as a significant inflection point in the company's move beyond smartphones.

What Analysts Think About Qualcomm Stock

Qualcomm's handset business may have stumbled in the third quarter, but analysts say investors should not panic. While weaker Android demand in China, memory shortages and a faster-than-expected loss of Apple's modem business weighed on results, many experts believe the company's future growth is tied to businesses beyond smartphones. Morgan Stanley analyst Joseph Moore said Android weakness in China is largely behind Qualcomm, although memory supply issues remain a challenge.

Moore also said Qualcomm is likely to lose more of Apple's iPhone modem business than previously expected, with Apple-related chipset revenue likely becoming minimal next year. Even so, Qualcomm continues to collect Apple royalty payments, which management said remain intact. Morgan Stanley kept its "Equal-weight" rating and lowered its price target to $220 from $231.

RBC Capital Markets is looking beyond the handset slowdown and focusing on Qualcomm's push into AI data centers. RBC highlighted management's reaffirmation of a goal to generate $5 billion in data center revenue by fiscal 2027 through custom AI chips for hyperscale customers.

Other analysts also see Qualcomm's biggest growth drivers outside the smartphone market. Stone Fox Capital pointed to Qualcomm's target of reaching $40 billion in non-handset revenue by fiscal 2029, supported by more than 60% growth expected in fiscal 2027. The firm said the stock appears inexpensive at 14.35 times current earnings, given its expanding opportunities in AI, automotive and IoT.

Seeking Alpha analyst Motti Sapir echoed that view and maintained a "Buy" rating. He said Qualcomm's core business remains healthy, citing automotive revenue growth of 61% YOY and IoT revenue growth of 9% in the third quarter. Combined automotive and IoT revenue rose 28%, which he said reinforces Qualcomm's diversification beyond smartphones. Sapir also said the company's valuation, cash generation and growing exposure to AI, automotive and connected devices make the recent handset weakness easier for long-term investors to overlook.

Wall Street remains broadly constructive on Qualcomm's long-term outlook. The stock currently carries a consensus "Moderate Buy" rating. Of the 34 analysts covering the company, nine rate it a "Strong Buy," two rate it a "Moderate Buy," 19 rate it a "Hold," two rate it a "Moderate Sell," and two rate it a "Strong Sell."

Analysts also see substantial upside on paper. The average price target of $217.31 implies potential upside of 46.6% over the next 12 months, while the Street-high target of $314 implies upside of 111.9% from current levels. That outlook reflects growing confidence that Qualcomm's AI, automotive and IoT businesses could offset near-term handset challenges. The divergence between Qualcomm's near-term stock performance and analyst targets underscores a broader tension across the semiconductor sector, where investors are weighing immediate cyclical pressures against multi-year growth narratives tied to AI and automotive trends.

On the date of publication, Anushka Mukherji did not have, either directly or indirectly, positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com.