Progress on Qualcomm Diversification Plans Confirm Our Thesis

We are seeing more than a few price target increases on Thursday morning for our shares of Qualcomm (QCOM) following the company’s beat-and-raise September quarter results.

While its top and bottom lines of $11.27 billion, up 10% year over year, and $3.00 bested consensus expectations, peering below the headline figures confirms the company’s diversification strategy is progressing nicely. As shareholders, it is the continued progress on that front that we aim to capture, as it should foster a rethink on how Wall Street values QCOM shares as it reduces its reliance on the smartphone market. Based on the matriculation of AI PC and IoT design wins converting to shipping programs, and further gains in the auto chip market, we reiterate our $205 price target and Two rating.

Now let’s get deeper into the details...

The company’s aggregate chip revenue rose 13% year over year to $9.82 billion (87% of total revenue, with smartphone revenue up 14% year over year to $6.96 billion). That was a much quicker pace compared to the overall 2.6% growth in smartphone shipments during Q3 2025 tabulated by IDC. Management commented that its non-Apple (AAPL) revenue rose 18% year over year as it benefited from greater content per device and strong placement in the premium and flagship market. That becomes even clearer when we size up that 18% figure against the year-over-year 2.5% increase in the non-Apple smartphone market.

Automotive sales rose 17% to $1.05 billion in the quarter, a new record, and sales from Qualcomm's internet of things (IoT) unit increased 7% to $1.07 billion. Inside that IoT business, Qualcomm is benefiting from demand in AI PCs as well as smart glasses and other industrial applications. Looking ahead, management continues to see about 150 AI PC designs being commercialized through 2026 and further smart glasses products coming to market. That includes products from Samsung (SSNLF) that leverage Google’s (GOOGL) Android XR operating system.

And with that mention of Google, let’s remember the expanded relationship between the two that targets multiple products, including smart glasses, AI PCs and the digital cockpit. We should see more progress on this front in the coming quarters, and it should help the market become more comfortable with management’s fiscal 2029 target of $22 billion from its automotive and IoT businesses.

And for those keeping track, those combined businesses totaled $10.6 billion for the 12 months ended September 2025, up from $8.3 billion for the prior 12-month period. We look forward to the upcoming 2026 CES event, which should see multiple announcements on the AI PC and smartphone front, as well as the Google-Qualcomm one.

Qualcomm also shared that in 1H 2026, it will update investors on its data center plans, including its roadmap performance and differentiated memory and compute technology. We discussed the initial win on this front but given the competitive AI and data center chip landscape, Qualcomm will need to win over its skeptics. Our view is that success on this front would help reduce Qualcomm’s exposure to the smartphone market and be another factor in leading Wall Street to revisit how it values QCOM shares.

December Quarter Guidance Tops Forecasts

Looking to the fiscal first-quarter, Qualcomm said it expects to deliver EPS of $3.30 to $3.50 versus the $3.26 market forecast. Revenue for the quarter is expected to reach $11.8 billion to $12.6 billion versus the $11.59 billion consensus and the $11.7 billion posted in the year-ago quarter. Baked into that revenue guidance, aggregate chip revenue is targeted to come in at $10.3 billion to $10.9 billion, with the balance coming from its higher margin licensing business.

By end market, handset revenue is expected to see low-teens percentage growth sequentially, primarily driven by new flagship Android handset launches, and automotive revenue is expected to be flat to slightly up on a sequential basis. The IoT business, which tends to be influenced by the holiday shopping season, is likely to see a modest sequential decline, but to us, the design win matriculation in 2026 is far more important.

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At the time of publication, TheStreet Pro Portfolio was long QCOM, AAPL and GOOGL.