Qualcomm (QCOM) is likely to face a challenging near-term outlook as earnings power appears largely "optimized" and a severe memory shortage weighs on the Android handset market, Morgan Stanley said in a report Tuesday.

The investment bank said handset volumes are "likely to be pressured" as memory shortages spread through the year, particularly among China-based Android customers delaying shipments, raising the risk that Qualcomm's forecast for a single-digit decline in handset shipments may prove optimistic.

While Qualcomm has executed well on "diversification," the investment bank said the impact will take time, with automotive contributing only about "9% of revenues" and compute, data center, personal computers and artificial intelligence initiatives requiring "strong investment" amid ongoing execution and compatibility challenges.

Morgan Stanley forecasts Qualcomm's revenue to decline about 5% in 2026 before rebounding roughly 4% in 2027, with non-GAAP earnings per share seen falling to $10.20 and recovering to $11.51 in 2027, still below 2025 levels.

Morgan Stanley has an underweight rating on Qualcomm, with a price target of $132.

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