Qualcomm Missed Earnings Estimates But Says the Bottom Is Near. How to Play QCOM Stock Here.

Qualcomm (QCOM) reported mixed third-quarter earnings on July 29, which promptly sent shares of the tech giant even lower. However, it appears the worst of the worst has been priced into QCOM stock, with Qualcomm arguing that the latest quarter represents the bottom.

In its most recent quarter, Qualcomm posted adjusted EPS of $2.21, which was a penny below estimates. Revenue for the quarter slipped about 4% year-over-year (YOY) to $9.95 billion but still came in above estimates of $9.7 billion.

Not helping, handset revenue slipped 20% YOY to $5.08 billion thanks to ongoing memory supply shortages, and as the company's “modem share for the upcoming iPhone launch is expected to be materially lower than [the] prior estimate of 20%." However, Qualcomm believes the worst of the current smartphone downturn may nearly be over.

How Should Investors Play QCOM Stock After Earnings?

The earnings miss was not the whole story, as earnings were mixed.

Of course, handset revenue didn’t help. Neither did guidance. For Q4, Qualcomm expects revenue of $9.7 billion to $10.5 billion and adjusted EPS of $2.05 to $2.25, while analysts expect roughly $2.38 in adjusted EPS. So, the profit outlook is clearly disappointing.

However, investors should look beyond the disappointing numbers and focus on the “bottom” story. Remember, Qualcomm told investors that handset revenue from Chinese customers was expected to reach a bottom in Q3 before returning to sequential growth in the following quarter. That is an important part of the investment story.

Still, I wouldn’t rush into QCOM stock just yet. Memory prices remain elevated, smartphone manufacturers are being cautious, and Qualcomm expects its revenue from Apple (AAPL) products to decline as Apple's use of Qualcomm modem components falls. In short, a bottom really isn’t guaranteed until there’s proof.

That said, Qualcomm is more than a smartphone stock. The best part of the earnings report was the growth outside smartphones. Qualcomm noted that combined automotive and IoT revenue increased 28% YOY, with automotive also delivering 23 consecutive quarters of double-digit YOY growth. Plus, management expects total non-handset revenue to reach $40 billion by fiscal 2029, up from the prior target of $22 billion. Qualcomm also expects non-handset revenue growth to accelerate significantly in fiscal 2027, including growth from its emerging data-center business. If Qualcomm can execute on that plan, today's weakness could be an opportunity.

Weakness May Be an Opportunity

For long-term investors, weakness may be an opportunity.

The bullish case is that smartphone demand eventually stabilizes, memory pressures ease, automotive and IoT continue growing, and Qualcomm's new AI and data-center businesses become meaningful sources of revenue. We can also argue that QCOM stock’s year-to-date (YTD) pullback prices in a good deal of negativity.

The bearish case is that smartphone weakness lasts longer than expected, Apple revenue falls faster, and other costs remain high.

A long-term investor could always start out with a small position in QCOM stock, then add to it over time should the company see better handset revenue, better margins, stronger guidance, or evidence that the data-center business is gaining traction.

What Do Analysts Say About QCOM Stock?

Of the 34 analysts covering QCOM stock, 10 have a “Strong Buy” rating, two have a “Moderate Buy” rating, 19 have a “Hold” rating, one has a “Moderate Sell” rating, and two analysts have a “Strong Sell” rating. Overall, Qualcomm has a consensus “Moderate Buy” rating. The mean target price of $198.03 implies potential upside of 22% from current levels. Meanwhile, the high price target of $400 implies as much as 146% possible growth from here.

To summarize, the company missed earnings expectations in Q3, smartphone revenue dropped sharply, and its near-term profit outlook disappointed Wall Street. However, the QCOM stock story is not just about smartphones anymore. Qualcomm is attempting to turn itself into a diversified company with automotive, IoT, AI, and data centers. Management believes the current handset downturn is approaching a bottom, but investors will need to see further proof before they start getting aggressively bullish on this oversold stock.