Qualcomm Incorporated (QCOM Quick QuoteQCOM - Free Report) shares have plunged 8.3% over the past year against the industry’s growth of 36.2%. It has underperformed peers like Hewlett Packard Enterprise Company (HPE Quick QuoteHPE - Free Report) and Broadcom Inc. (AVGO Quick QuoteAVGO - Free Report) . Hewlett Packard has surged 16.5% and Broadcom is up 82.7% over this period. 

One-Year QCOM Stock Price Performance

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Adverse China Trade Relationships Hurt QCOM

Much of these hardships can be attributed to the continued U.S.-China trade spat. The chip-making firm has a significant presence in more than 12 cities in China, aiming to drive advancements in semiconductors and mobile telecommunications for the larger benefit. The company has been a key supplier of chips and other related components to local smartphone manufacturers like Xiaomi, Huawei and its spin-off brand Honor. However, it appears that Qualcomm is increasingly finding it difficult to maintain its operations in China.

The U.S. Commerce Department has long imposed various trade restrictions against China that banned the sale of high-tech equipment, chips, components and related technology to develop high-end smartphones and AI-enabled chips. The U.S. administration recently extended the tariff truce for another 90 days despite threatening to impose additional tariffs to such an extent that could potentially “destroy China”.

QCOM Margins Eroded by High R&D Costs

To add to the woes, Qualcomm's margins have declined over the years 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. The shift in the share among original equipment manufacturers at the premium tier has reduced the near-term opportunity to sell integrated chipsets from the Snapdragon platform. In addition, Qualcomm faces stiff competitive pressures from rivals Broadcom and Hewlett Packard.

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. 

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Snapdragon, Automotive Businesses Buoy QCOM

Despite the short-term headwinds, Qualcomm is 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 strategy is aimed at moving beyond the slowing smartphone industry, which is its primary breadwinner. In addition to diversifying its revenue stream, this is likely to further extend QCOM’s AI footprint.

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 is gradually gaining traction in the vehicle-to-everything (V2X) communication systems market with the buyout of Autotalks. With seamless access to Autotalks’ comprehensive V2X expertise, Qualcomm has been able to offer an extensive suite of automotive-qualified global V2X solutions for installation in vehicles, as well as 2-wheelers and roadside infrastructure. The company’s V2X chipsets offer production-ready standalone solutions that are purpose-built for global applications, resulting in direct communication becoming more pervasive.  

Estimate Revision Trend for QCOM

Earnings estimates for Qualcomm for fiscal 2025 have moved up 8.6% to $11.87 over the past year, while the same for fiscal 2026 has declined 2.5% to $11.86. The mixed estimate revision depicts that investors are skeptical about the growth potential for the stock.

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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. With a mixed bag of earnings estimates, the stock is witnessing neither too positive nor too negative investor sentiments. 

Moreover, stiff competition and softness in key end markets are likely to put pressure on the bottom-line growth. High R&D costs erode its profitability to a large extent. Qualcomm is facing a tough operating environment in China amid escalating tariffs, raising questions about its long-term viability plans in the communist country. 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.