Facing Potential Smartphone Weakness and Tough Competition, Qualcomm Stock’s Outlook Is Not Particularly Strong

Qualcomm (QCOM) has multiple, potential, strong, positive catalysts due to its exposure to the fast-growing auto chip and Internet of Things (IoT) sectors. Still, since the firm is facing tough competition in these areas, its catalysts may not turn out to be as powerful as some expect. Meanwhile, high flash-memory prices could put a big dent in the company's revenue from smartphone sales in the shorter term. Since smartphone sales in the company's last completed fiscal year generated about 63% of its overall revenue, the shares' overall outlook in the short-to-medium term is quite uncertain.

Indeed, Citi is cautious about the company's short-term outlook, as the bank recently placed “a downside Catalyst Watch” on the name "based on the potential weakness" of its smartphone sales.

In light of these points, the outlook of QCOM stock is quite uncertain, and investors should avoid owning it.

Smartphone Sales Could Sink Significantly, Badly Denting Qualcomm

As I noted in a previous column, Apple (AAPL), responding to high flash memory prices, has “recently raised its prices on its MacBooks and iPads by roughly 16% to 20%.” Although AAPL has not yet raised its iPhone prices, it could very well do so when it launches new versions of the device in September.

Meanwhile, “investment bank Evercore…believes that the (price hikes) may meaningfully reduce the demand for the tech giant's offerings.”

If Apple and Samsung increase the prices of their handsets considerably, the demand for their smartphones could fall meaningfully. And since Qualcomm generated about 62% of its revenue from smartphone royalties during its fiscal 2025, the latter scenario could significantly lower QCOM's top and bottom lines.

Tough Competition in Other Areas

Qualcomm can benefit from the rapid expansion of the IoT markets in general and the automotive in particular. In QCOM's fiscal Q1, its automotive revenue jumped 15% versus the same period a year earlier to $1.1 billion, while its “design-win pipeline” in autos has reached an impressive $45 billion. Moreover, its partners in the auto space include marquee names like Volkswagen (VWAGY), BMW (BMWKY), Toyota (TM), and Google (GOOG) (GOOGL).

However, QCOM is also facing competition from some enormous, well-established firms in the auto chip space, such as Nvidia (NVDA), NXP Semiconductors (NXPI), and Mobileye (MBLY). When it comes to robots and other Internet of Things devices, QCOM will likely have to take on these big players, along with Washington-backed Intel (INTC) and AMD (AMD).

Similarly, Qualcomm is looking to enter the CPU chip space, but it will have to compete with AMD, Nvidia, and Intel in that area. Last month, Bank of America warned that, when it comes to selling chips to data centers, Qualcomm may not be able to succeed in the tough sector.

"We believe Qualcomm is re-entering a fast-growing but hyper-competitive AI market full of large incumbents," the bank contended. 

Valuation and the Bottom Line on QCOM Stock

Qualcomm's forward price-earnings ratio of 22 is not especially attractive, since analysts on average expect its earnings per share to fall 21% during its current fiscal year and fall slightly during its next fiscal year.   

All in all, QCOM stock is not appealing either in the short-to-medium term or in the longer term.