Qualcomm Incorporated (QCOM Quick QuoteQCOM - Free Report) reported strong fourth-quarter fiscal 2025 results, with adjusted earnings and revenues exceeding the respective Zacks Consensus Estimate, driven by healthy demand trends in IoT and automotive businesses. Revenues increased year over year, led by the strength of the business model, diversification initiatives and the ability to respond proactively to the evolving market scenario.

Record Automotive Revenues Aid QCOM

Qualcomm is witnessing healthy traction in EDGE networking, which helps transform connectivity in cars, business enterprises, homes, smart factories, next-generation wearables and tablets. The company intends to harness artificial intelligence (AI) to meet increased demands for essential products and services that are the building blocks of digital transformation in a cloud economy.

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 become the largest smartphone radio frequency front-end supplier by revenue in the near future. Automotive revenues rose 17% to a record high of $1.05 billion, driven by increased content in new vehicle launches with its Snapdragon Digital Chassis platform, with automakers deploying high-performance, low-power computing and connectivity chips to bring next-generation experience to consumers. 

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QCOM Rides on Snapdragon Traction

Leveraging processors with multi-core CPUs with cutting-edge features, amazing graphics and worldwide network connectivity, Qualcomm Snapdragon mobile platforms are fast and have 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.

Handset revenues jumped 14% in fourth-quarter fiscal 2025 to $6.96 billion, led by healthy traction in premium Android handsets enabled by the Snapdragon Elite Gen 5 platform. IoT revenues were up 7% to $1.81 billion on solid demand for the Snapdragon AR1 chipset for the emerging AI smart glasses category.

Bitter U.S.-China Trade Relations Hurt QCOM

However, the continued U.S.-China trade spat has dented its growth potential. 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,  banning the sale of high-tech equipment, chips, components and related technology to develop high-end smartphones and AI-enabled chips. The U.S. administration has extended the export controls that plugged almost all loopholes to block Beijing’s access to cutting-edge chips and the latest software technology.

High R&D Costs Erode QCOM Margins

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 Hewlett Packard Enterprise Company (HPE Quick QuoteHPE - Free Report) and Broadcom Inc. (AVGO Quick QuoteAVGO - Free Report) . 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.

Price Performance

Qualcomm shares have gained 1.6% over the past year compared with the industry’s growth of 56.8%, lagging peers Hewlett Packard and Broadcom. While Hewlett Packard has gained 6.5%, Broadcom surged 95.3% over this period.

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Estimate Revision Trend for QCOM

Earnings estimates for Qualcomm for fiscal 2026 have moved up 0.7% to $11.99 over the past seven days, while the same for fiscal 2027 has jumped 1.1% to $12.33. The positive estimate revision depicts bullish sentiments 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 positive earnings estimates, the stock is witnessing bullish investor sentiment. 

However, 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.