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Can Solid Automotive Revenues Propel QCOM Stock Amid Tariff Woes?
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Key Takeaways
QCOM's automotive revenue hit $984M, up 21%, on Snapdragon Digital Chassis adoption.
IoT revenue jumped 24% to $1.68B, with strength in Snapdragon AR1 smart glasses chips.
Tariff tensions with China and high R&D costs weigh on margins and growth prospects.
Qualcomm Incorporated (QCOM - Free Report) reported relatively robust third-quarter fiscal 2025 results, with adjusted earnings exceeding the Zacks Consensus Estimate, driven by healthy demand trends in IoT and automotive businesses. The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Qualcomm believes it is on track to achieve a combined $22 billion in revenues from automotive and IoT by fiscal 2029.
Automotive revenues rose 21% to a record high of $984 million, driven by increased content in new-vehicle launches with the Snapdragon Digital Chassis platform as automakers continue to deploy high-performance, low-power computing and connectivity chips to bring next-generation experience to consumers. IoT revenues were up 24% to $1.68 billion on solid demand for the Snapdragon AR1 chipset for the emerging artificial intelligence (AI) smart glasses category. In fiscal 2025, Qualcomm expects IoT and automotive revenues to grow approximately 20% and 35%, respectively.
Snapdragon Traction Buoys QCOM
Qualcomm is also benefiting from investments toward building a licensing program in mobile. The company is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream. In addition, the chip manufacturer envisions solid growth opportunities within the mobile space, driven by the strength of its Snapdragon portfolio.
Leveraging processors with multi-core CPUs with cutting-edge features, amazing graphics and worldwide network connectivity, Qualcomm Snapdragon mobile platforms are fast with superb power efficiency. Smartphones and mobile devices built with Snapdragon mobile platforms enable immersive augmented reality and virtual reality experiences, brilliant camera capabilities, superior 4G LTE and 5G connectivity with state-of-the-art security solutions.
Qualcomm is currently foraying deeper into the realm of AI capabilities within the laptop and desktop business with the launch of the Snapdragon X chip for mid-range AI desktops and laptops. The Snapdragon X SoC (system-on-chip) is the fourth such product in the Snapdragon X processor line, following the successful launch of the Snapdragon X Plus 8-core, Snapdragon X Plus and Snapdragon X Elite series. Based on a 4-nanometer process, the Snapdragon X chip comprises an 8-core Oryon central processor, a graphics component and a neural processing unit (NPU). The NPU accelerates AI workloads, offering 45 TOPS (trillions of operations per second), making it an ideal platform to power Copilot+PCs – Microsoft Corporation’s (MSFT - Free Report) vision of AI-first, flagship Windows hardware.
Bitter Trade Relations With China Hurt QCOM
Despite the healthy growth dynamics, Qualcomm is increasingly finding it difficult to maintain its operations in China. The chip-making firm has a significant presence in more than 12 cities in China and has been a key supplier of chips and other related components to local smartphone manufacturers like Xiaomi, Huawei and its spin-off brand Honor. Much of these hardships can be attributed to the continued U.S.-China trade spat. The U.S. Commerce Department has long imposed various trade restrictions against China that ban the sale of high-tech equipment, chips, components and related technology to develop high-end smartphones and AI-enabled chips. With Trump imposing fresh levies on China in his second term in office, Beijing has also put reciprocal tariffs in place as a ‘tit-for-tat’ measure, adversely impacting Qualcomm’s revenues. With the high-stakes tariff truce extension hanging in the balance, the company is finding it difficult to maintain its growth in China.
High R&D Costs Dent QCOM Margins
Over the years, Qualcomm's margins have declined due to high operating expenses and R&D (research & development) costs. The company expects softness in the handset market and a weaker overall mix of devices to continue in the near future. Shift in the share among original equipment manufacturers at the premium tier has reduced Qualcomm's near-term opportunity to sell integrated chipsets from the Snapdragon platform. Aggressive competition from low-cost chip manufacturers and established players in the mobile phone chipset market is also likely to hurt Qualcomm's profits. Although the global smartphone market is expected to maintain its momentum over the next three to four years, a major portion of this growth is likely to come from the low-cost emerging markets, which may weigh on Qualcomm's margins.
Image Source: Zacks Investment Research
Price Performance
QCOM shares have declined 9.4% over the past year against the industry’s growth of 51.5%, lagging peers like Hewlett Packard Enterprise Company (HPE - Free Report) and Broadcom Inc. (AVGO - Free Report) . While Hewlett Packard gained 21.1%, Broadcom surged 105.2% during this period.
One-Year QCOM Stock Price Performance
Image Source: Zacks Investment Research
Estimate Revision Trend for QCOM
Earnings estimates for Qualcomm for fiscal 2025 have moved up 7.9% to $11.85 over the past year, while the same for fiscal 2026 has declined 2.7% to $11.86. The mixed bag of estimate revisions depicts that investors are skeptical about the growth prospects of the stock.
Image Source: Zacks Investment Research
End Note
With robust automotive and Snapdragon traction, Qualcomm appears to be relatively better placed in terms of its portfolio strength. A strong emphasis on quality, diligent execution of operational plans and continuous portfolio enhancements are driving more value for customers.
However, stiff competition and softness in key end markets are likely to put pressure on the bottom-line growth. High R&D costs eroded its profitability to a large extent. Qualcomm is reportedly undertaking job cuts and retrenchments to sustain its business in China amid escalating tariffs, raising questions about its long-term viability plans in the communist country. The mixed earnings estimate revisions also put a question mark on the company’s growth prospects. With a Zacks Rank #3 (Hold), Qualcomm appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Can Solid Automotive Revenues Propel QCOM Stock Amid Tariff Woes?
Key Takeaways
Qualcomm Incorporated (QCOM - Free Report) reported relatively robust third-quarter fiscal 2025 results, with adjusted earnings exceeding the Zacks Consensus Estimate, driven by healthy demand trends in IoT and automotive businesses. The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Qualcomm believes it is on track to achieve a combined $22 billion in revenues from automotive and IoT by fiscal 2029.
Automotive revenues rose 21% to a record high of $984 million, driven by increased content in new-vehicle launches with the Snapdragon Digital Chassis platform as automakers continue to deploy high-performance, low-power computing and connectivity chips to bring next-generation experience to consumers. IoT revenues were up 24% to $1.68 billion on solid demand for the Snapdragon AR1 chipset for the emerging artificial intelligence (AI) smart glasses category. In fiscal 2025, Qualcomm expects IoT and automotive revenues to grow approximately 20% and 35%, respectively.
Snapdragon Traction Buoys QCOM
Qualcomm is also benefiting from investments toward building a licensing program in mobile. The company is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream. In addition, the chip manufacturer envisions solid growth opportunities within the mobile space, driven by the strength of its Snapdragon portfolio.
Leveraging processors with multi-core CPUs with cutting-edge features, amazing graphics and worldwide network connectivity, Qualcomm Snapdragon mobile platforms are fast with superb power efficiency. Smartphones and mobile devices built with Snapdragon mobile platforms enable immersive augmented reality and virtual reality experiences, brilliant camera capabilities, superior 4G LTE and 5G connectivity with state-of-the-art security solutions.
Qualcomm is currently foraying deeper into the realm of AI capabilities within the laptop and desktop business with the launch of the Snapdragon X chip for mid-range AI desktops and laptops. The Snapdragon X SoC (system-on-chip) is the fourth such product in the Snapdragon X processor line, following the successful launch of the Snapdragon X Plus 8-core, Snapdragon X Plus and Snapdragon X Elite series. Based on a 4-nanometer process, the Snapdragon X chip comprises an 8-core Oryon central processor, a graphics component and a neural processing unit (NPU). The NPU accelerates AI workloads, offering 45 TOPS (trillions of operations per second), making it an ideal platform to power Copilot+PCs – Microsoft Corporation’s (MSFT - Free Report) vision of AI-first, flagship Windows hardware.
Bitter Trade Relations With China Hurt QCOM
Despite the healthy growth dynamics, Qualcomm is increasingly finding it difficult to maintain its operations in China. The chip-making firm has a significant presence in more than 12 cities in China and has been a key supplier of chips and other related components to local smartphone manufacturers like Xiaomi, Huawei and its spin-off brand Honor. Much of these hardships can be attributed to the continued U.S.-China trade spat. The U.S. Commerce Department has long imposed various trade restrictions against China that ban the sale of high-tech equipment, chips, components and related technology to develop high-end smartphones and AI-enabled chips. With Trump imposing fresh levies on China in his second term in office, Beijing has also put reciprocal tariffs in place as a ‘tit-for-tat’ measure, adversely impacting Qualcomm’s revenues. With the high-stakes tariff truce extension hanging in the balance, the company is finding it difficult to maintain its growth in China.
High R&D Costs Dent QCOM Margins
Over the years, Qualcomm's margins have declined due to high operating expenses and R&D (research & development) costs. The company expects softness in the handset market and a weaker overall mix of devices to continue in the near future. Shift in the share among original equipment manufacturers at the premium tier has reduced Qualcomm's near-term opportunity to sell integrated chipsets from the Snapdragon platform. Aggressive competition from low-cost chip manufacturers and established players in the mobile phone chipset market is also likely to hurt Qualcomm's profits. Although the global smartphone market is expected to maintain its momentum over the next three to four years, a major portion of this growth is likely to come from the low-cost emerging markets, which may weigh on Qualcomm's margins.
Image Source: Zacks Investment Research
Price Performance
QCOM shares have declined 9.4% over the past year against the industry’s growth of 51.5%, lagging peers like Hewlett Packard Enterprise Company (HPE - Free Report) and Broadcom Inc. (AVGO - Free Report) . While Hewlett Packard gained 21.1%, Broadcom surged 105.2% during this period.
One-Year QCOM Stock Price Performance
Image Source: Zacks Investment Research
Estimate Revision Trend for QCOM
Earnings estimates for Qualcomm for fiscal 2025 have moved up 7.9% to $11.85 over the past year, while the same for fiscal 2026 has declined 2.7% to $11.86. The mixed bag of estimate revisions depicts that investors are skeptical about the growth prospects of the stock.
Image Source: Zacks Investment Research
End Note
With robust automotive and Snapdragon traction, Qualcomm appears to be relatively better placed in terms of its portfolio strength. A strong emphasis on quality, diligent execution of operational plans and continuous portfolio enhancements are driving more value for customers.
However, stiff competition and softness in key end markets are likely to put pressure on the bottom-line growth. High R&D costs eroded its profitability to a large extent. Qualcomm is reportedly undertaking job cuts and retrenchments to sustain its business in China amid escalating tariffs, raising questions about its long-term viability plans in the communist country. The mixed earnings estimate revisions also put a question mark on the company’s growth prospects. With a Zacks Rank #3 (Hold), Qualcomm appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.