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Qualcomm Witnesses Just 8.2% Growth in Past Year: Reason to Worry?
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Key Takeaways
QCOM shares rose 8.2% in the past year, underperforming the industry's 35.7% and trailing key rival Broadcom.
Margin pressure from high R&D costs, weak handset demand, and low-cost rivals is hitting Qualcomm's profits.
QCOM faces added challenges in China due to U.S. trade tensions, threatening its smartphone chip business.
Qualcomm Incorporated (QCOM - Free Report) shares have gained a modest 8.2% over the past year compared with the industry’s growth of 35.7%. Although it has outperformed peers like Hewlett Packard Enterprise Company (HPE - Free Report) , it lagged Broadcom Inc. (AVGO - Free Report) . While Hewlett Packard is up 5.7%, Broadcom has surged 47% over this period.
One-Year QCOM Stock Price Performance
Image Source: Zacks Investment Research
QCOM Plagued by Waning Margins
A combination of factors has led to a placid performance by the chip-manufacturing firm. 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.
Image Source: Zacks Investment Research
Bitter U.S.-China Bilateral Trade Ties Hurt QCOM
Moreover, Qualcomm is expected to face softness in demand from China. 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 the communist nation due to the continued U.S.-China trade spat.
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. As Washington tightens trade restrictions, Beijing has intensified its push for self-sufficiency in critical industries. This shift poses a dual challenge for QCOM, as it faces potential market restrictions and increased competition from domestic chipmakers. In addition, weaker spending across consumer and enterprise markets, especially in China, resulted in elevated customer inventory levels.
QCOM Buoyed by Snapdragon, AI & Automotive Businesses
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.
It has completed the acquisition of U.K.-based chip firm Alphawave Semi for an enterprise value of approximately $2.4 billion. The buyout offers Qualcomm an opportunity to expand its presence in high-growth applications, including data centers, AI, data networking and data storage.
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 2026 have moved down 1.4% to $12.15 over the past year, while the same for fiscal 2026 has declined 2.1% to $12.58. The downward estimate revision depicts that investors are bearish about the growth potential for 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. With downward earnings estimate revisions, the stock is witnessing negative investor sentiment.
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.
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Qualcomm Witnesses Just 8.2% Growth in Past Year: Reason to Worry?
Key Takeaways
Qualcomm Incorporated (QCOM - Free Report) shares have gained a modest 8.2% over the past year compared with the industry’s growth of 35.7%. Although it has outperformed peers like Hewlett Packard Enterprise Company (HPE - Free Report) , it lagged Broadcom Inc. (AVGO - Free Report) . While Hewlett Packard is up 5.7%, Broadcom has surged 47% over this period.
One-Year QCOM Stock Price Performance
Image Source: Zacks Investment Research
QCOM Plagued by Waning Margins
A combination of factors has led to a placid performance by the chip-manufacturing firm. 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.
Image Source: Zacks Investment Research
Bitter U.S.-China Bilateral Trade Ties Hurt QCOM
Moreover, Qualcomm is expected to face softness in demand from China. 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 the communist nation due to the continued U.S.-China trade spat.
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. As Washington tightens trade restrictions, Beijing has intensified its push for self-sufficiency in critical industries. This shift poses a dual challenge for QCOM, as it faces potential market restrictions and increased competition from domestic chipmakers. In addition, weaker spending across consumer and enterprise markets, especially in China, resulted in elevated customer inventory levels.
QCOM Buoyed by Snapdragon, AI & Automotive Businesses
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.
It has completed the acquisition of U.K.-based chip firm Alphawave Semi for an enterprise value of approximately $2.4 billion. The buyout offers Qualcomm an opportunity to expand its presence in high-growth applications, including data centers, AI, data networking and data storage.
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 2026 have moved down 1.4% to $12.15 over the past year, while the same for fiscal 2026 has declined 2.1% to $12.58. The downward estimate revision depicts that investors are bearish about the growth potential for 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. With downward earnings estimate revisions, the stock is witnessing negative investor sentiment.
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.