Qualcomm Stock Plunges 9% on Weak Guidance Despite Earnings Beat

Qualcomm reported fiscal fourth-quarter results after Wednesday's close that initially looked solid. Revenue came in at $10.4 billion, down 7% year over year but above analysts' estimates of $10.1 billion. Earnings per share were $2.17, down from $3 a year earlier but slightly ahead of the $2.16 consensus. Despite the beat, the stock cratered on Thursday, falling nearly 14% at one point before closing down just under 10%.

The culprit was the details. Qualcomm's flagship handset business saw revenue plunge 26% to $5.1 billion, and pretax earnings in that segment fell 30%. The company also issued weak guidance for the current quarter, projecting revenue of $10.4 billion to $11.2 billion, well below the $12.3 billion it recorded in the same period last year. Earnings guidance of $2.15 to $2.35 per share also came in below analyst expectations of $2.32.

Management acknowledged the headwinds, with CEO Cristiano Amon noting that fiscal 2027 will mark the start of a non-handset revenue inflection, driven by the ramp of its data center business. Qualcomm reiterated its target of $5 billion in data center revenue by fiscal 2027, up from essentially zero today. However, investors focused on the near-term pain rather than the long-term promise.

The stock is now down 37% from its mid-year peak, reflecting growing concerns about the company's ability to offset declining handset demand with new growth initiatives. The shrinking relationship with Apple, which is developing its own modem chips, has also weighed on sentiment.

While Qualcomm confirmed Meta as a data center customer and is lining up others, analysts remain skeptical. A Morgan Stanley analyst noted a lack of conviction in a three-year ramp, questioning whether a foundation built on custom chips has legs. The AI semiconductor space is highly competitive, and Qualcomm is entering late.

The sharp decline in Qualcomm's handset business is a major concern because it represents the majority of the company's revenue. A 26% drop in handset revenue, driven by both a shrinking relationship with Apple and broader smartphone market weakness, signals that the core business is under significant pressure. The company's guidance suggests this trend will continue in the near term, with no clear catalyst for a rebound.

The data center pivot is promising but highly uncertain. Qualcomm is essentially starting from zero in a market dominated by Nvidia and other established players. While the company has secured Meta as a customer and set an ambitious $5 billion target for fiscal 2027, there is no guarantee that it can execute successfully. The custom chip approach may not gain widespread adoption, and the AI boom could cool off.

Valuation-wise, Qualcomm trades at just 15 times projected earnings, which may seem cheap. However, the market is pricing in significant risk: declining handset revenue, execution risk on the data center front, and competitive pressures. Until there is more visibility on the data center ramp and stabilization in handsets, the stock may remain under pressure.

For investors, the key question is whether Qualcomm can successfully transform itself into a diversified semiconductor company. The company has the resources and IP to make a run at it, but the path is far from certain. The market is clearly taking a wait-and-see approach, and the stock could remain volatile until there is tangible progress.