Qualcomm is heading into its Q3 fiscal 2026 earnings report on July 29 after market close, facing what analysts describe as one of the most consequential earnings reports in the semiconductor space this week. The company's stock has hit a 52-week low of $155.00, representing a 35% decline from its peak of $259.92 reached May 29. Despite a $20 billion stock repurchase authorization announced in June, the stock has underperformed the semiconductor industry by a wide margin, returning 9.61% against the industry's 39% gain. The Zacks consensus estimate calls for $9.71 billion in revenue and $2.22 in adjusted EPS, with the company having beaten estimates in each of the past four quarters, delivering an average earnings surprise of 3.28%.
Qualcomm forecast fourth-quarter profit below Wall Street estimates, with adjusted profit expected between $2.05 and $2.25 per share. This falls short of analysts' average estimate of $2.36 per share. The company also forecast revenue of between $9.7 billion and $10.5 billion during the period, compared with estimates of $10.02 billion. Revenue in its chip segment is expected to be between $8.4 billion and $9 billion, while analysts were expecting $8.49 billion. Qualcomm expects revenue from Apple products to decline more quickly starting in the fourth quarter as supply constraints reduce its share of components used in the next iPhone launch to well below its earlier estimate of 20%. For fiscal 2027, the company expects the majority of its chip sales will come from categories other than smartphones, with management noting they 'kind of replaced Apple with the data center'.
According to reports from Reuters, CEO Cristiano Amon said costs had risen not just for memory chips, but across the supply chain. The company plans to raise prices starting September 1 in an effort to return its margins to historical levels. Amon explained that Qualcomm will have to negotiate with each customer, noting that 'the temporary disconnect between cost and pricing causes a slight decline temporarily in gross margin'. He emphasized they are 'just passing through big cost increases that we have'. A surge in AI infrastructure spending has tightened semiconductor supply chains, driving up costs for memory, wafers, packaging and testing. Bernstein analysts noted that cost increases and higher spending are significantly impacting margins, with the forthcoming data-center ramp likely to more than offset pricing action. Qualcomm said benefits from price increases would emerge gradually over the next couple of quarters, and margins will be under pressure in the near term as existing contracts expire and new product cycles begin.
Despite handset challenges, Qualcomm's diversification strategy shows promising results. Automotive revenue rose 38% year over year last quarter to a record $1.3 billion, while Internet of Things (IoT) revenue grew 9% to $1.7 billion. Together, these segments grew 20% and now account for about one-third of chip segment revenue. The company's licensing business added $1.4 billion on top, at a 72% pre-tax margin. Management announced a custom silicon engagement with a leading hyperscaler remains on track for initial shipments later this calendar year, with a target of more than $15 billion of data center revenue by fiscal 2029, up from about $300 million this year. The data center timeline is specific, with two hyperscaler custom-silicon customers each generating more than $1 billion in revenue in fiscal 2027, followed by the AI250 accelerator with High Bandwidth Compute architecture in mid-2027 and the Oryon server CPU in mid-2028.
The stock's reaction has been immediate, with Qualcomm shares falling about 5% in premarket trading on Thursday following the company's warning about higher memory costs and steeper Apple revenue decline. At least six analysts cut their price targets on the stock, with the mean target now at $208.68. The company trades at 14.31 times its expected earnings over the next 12 months, compared with 43.85 times for Intel and 17.49 times for Nvidia. While Qualcomm remains optimistic about its AI and data center expansion, with growth in non-handset revenue expected to accelerate to more than 60% in fiscal 2027 from 24% in fiscal 2026, analysts at TD Cowen cautioned that the diversification story would take time to play out, noting that initial data center programs carry lower margins. The broader memory chip sector weakness, as evidenced by SK hynix's Q2 results missing estimates despite strong AI demand, highlights the challenges facing semiconductor companies navigating cost pressures and supply chain disruptions.
