Qualcomm Stock (QCOM) Drops 5% on Weak Guidance

Shares of Qualcomm (QCOM) are down 5% after the chipmaker issued forward guidance that disappointed Wall Street. The company delivered quarterly financial results that surpassed analysts' expectations. For the year's third quarter, Qualcomm posted earnings per share (EPS) of $2.17, which beat the $2.16 that had been expected among analysts. Revenue of $10.32 billion topped estimates of $10.11 billion. However, the company's sales were down 8% from a year earlier.

Unfortunately, the top and bottom line beats were overshadowed by Qualcomm's outlook. Management said that they expect earnings per share of $2.15 to $2.35 on revenue of $10.4 billion to $11.2 billion in the current fourth quarter. That guidance largely met analysts' expectations but did not exceed it.

Qualcomm's key performance indicators. Source: TipRanks

Smartphone Sales

Most of Qualcomm's microchips are used to operate smartphones. It's a market that's struggling as rising costs for memory chips forces handset makers to raise prices, hurting demand. Qualcomm raised prices in September of this year, leading to a drop off in sales. The company's smartphone microchip sales during the third quarter fell 26% to $5.14 billion, coming in below Wall Street estimates of $5.21 billion.

Qualcomm said in its earnings release that it is beginning to see growth in the category revive, and that Android smartphone shipments in China have bottomed and are starting to recover. However, Qualcomm still said in its print that it expects the global smartphone market to be flat in 2027, which is not a good sign for the company's growth moving forward.

Qualcomm's AI Data Center Business

Qualcomm has been pushing into the artificial intelligence (AI) sector with new microchips and processors that are used in data centers. The company said it had $650 million in AI data center revenue during the just completed third quarter, and plans to aggressively grow that business as it looks to diversify beyond its core smartphone market.

Management at Qualcomm said that they expect $5 billion in AI data center revenue in 2027. The company recently signed deals to supply data center chips for a a global hyperscaler, although Qualcomm's management team declined to name the mega-cap technology company that it has entered into a data center contract with.

Is QCOM Stock a Buy?

Qualcomm's stock has a consensus Hold rating among 10 Wall Street analysts. That rating is based on three Buy, five Hold, and two Sell recommendations issued in the last three months. The average QCOM price target of $195 implies 13% upside from current levels. These ratings could change after the company's financial results.