Over the past few weeks, Qualcomm Incorporated QCOM shares have witnessed a downtrend as President Trump imposed a 10% levy on imports from China, which doubled the tariff slapped on Beijing in early February. With one of the biggest footprints in the communist nation by a U.S.-based firm, the market uncertainties seem to be taking a toll on QCOM’s stock market performance. Moreover, as China accounts for the lion’s share of Qualcomm’s revenues (revenues from sales in China, including Hong Kong, were 66% of total revenues in fiscal 2024), any disruption in local operations is bound to have a ripple effect across the company.

The chip-making firm has a significant presence in more than 12 cities in China, aiming to drive advancements in semiconductors and mobile telecommunications for the larger benefit. The company has been a key supplier of chips and other related components to local smartphone manufacturers like Xiaomi, Huawei and its spin-off brand Honor. However, it appears that Qualcomm is increasingly finding it difficult to maintain its operations in China.

Much of these hardships can be attributed to the continued U.S.-China trade spat. The U.S. Commerce Department has long imposed various trade restrictions against China that banned the sale of high-tech equipment, chips, components and related technology to develop high-end smartphones and artificial intelligence (AI)-enabled chips. With Trump imposing fresh levies on China in his second term in office, Beijing has also put reciprocal tariffs in place as a ‘tit-for-tat’ measure, adversely impacting Qualcomm’s revenues.

High R&D Costs Dent QCOM Margins

Over the years, Qualcomm's margins have declined due to high operating expenses and R&D (research & development) costs. The company expects softness in the handset market and a weaker overall mix of devices to continue in the near future. Shift in the share among original equipment manufacturers at the premium tier has reduced Qualcomm's near-term opportunity to sell integrated chipsets from the Snapdragon platform. Aggressive competition from low-cost chip manufacturers and established players in the mobile phone chipset market is also likely to hurt Qualcomm's profits. Although the global smartphone market is expected to maintain its momentum over the next three to four years, a major portion of this growth is likely to come from the low-cost emerging markets, which may weigh on Qualcomm's margins. 

Image Source: Zacks Investment Research

Snapdragon Traction Buoys QCOM

Despite the short-term headwinds, Qualcomm is benefiting from investments toward building a licensing program in mobile. The company is well-positioned to meet its long-term revenue targets driven by solid 5G traction, greater visibility and a diversified revenue stream. In addition, the chip manufacturer envisions solid growth opportunities within the mobile space, driven by the strength of its Snapdragon portfolio.

Leveraging processors with multi-core CPUs with cutting-edge features, amazing graphics and worldwide network connectivity, Qualcomm Snapdragon mobile platforms are fast with superb power efficiency. Smartphones and mobile devices built with Snapdragon mobile platforms enable immersive augmented reality and virtual reality experiences, brilliant camera capabilities, superior 4G LTE and 5G connectivity with state-of-the-art security solutions.

Qualcomm is currently foraying deeper into the realm of AI capabilities within the laptop and desktop business with the launch of the Snapdragon X chip for mid-range AI desktops and laptops. The strategy is aimed at moving beyond the slowing smartphone industry, which is its primary breadwinner. In addition to diversifying its revenue stream, this is likely to further extend QCOM’s AI footprint.

The Snapdragon X SoC (system-on-chip) is the fourth such product in the Snapdragon X processor line, following the successful launch of the Snapdragon X Plus 8-core, Snapdragon X Plus and Snapdragon X Elite series. Based on a 4-nanometer process, the Snapdragon X chip comprises an 8-core Oryon central processor, a graphics component and a neural processing unit (NPU). The NPU accelerates AI workloads, offering 45 TOPS (trillions of operations per second), making it an ideal platform to power Copilot+PCs – Microsoft Corporation’s MSFT vision of AI-first, flagship Windows hardware.

QCOM Focusing on Automotive Business

The automotive telematics and connectivity platforms, digital cockpit and C-V2X solutions are fueling emerging automotive industry trends such as the growth of connected vehicles, the transformation of the in-car experience and vehicle electrification. Qualcomm believes it is on track to become the largest smartphone radio frequency front-end supplier by revenue in the near future. Automotive revenues surged 61% to a record high of $961 million in first-quarter fiscal 2025, driven by increased content in new vehicle launches with its Snapdragon Digital Chassis platform.

Price Performance

QCOM shares have declined 5.6% over the past year against the industry’s growth of 13.7%. It has outperformed peers like Hewlett Packard Enterprise Company HPE but lagged Broadcom Inc. AVGO. 

One-Year QCOM Stock Price Performance

Image Source: Zacks Investment Research

Estimate Revision Trend for QCOM

Earnings estimates for Qualcomm for fiscal 2025 have moved up 12.4% to $11.76 over the past year, while the same for fiscal 2026 has jumped 4.7% to $12.44. The positive estimate revision depicts bullish sentiments for the stock.

Image Source: Zacks Investment Research

End Note

With robust automotive and Snapdragon traction, Qualcomm appears to be relatively better placed in terms of its portfolio strength. A strong emphasis on quality, diligent execution of operational plans and continuous portfolio enhancements are driving more value for customers. With improving earnings estimates, the stock is witnessing a positive investor perception.

However, stiff competition and softness in key end markets are likely to put pressure on the bottom-line growth. High R&D costs eroded its profitability to a large extent. Qualcomm is reportedly undertaking job cuts and retrenchments to sustain its business in China amid escalating tariffs, raising questions about its long-term viability plans in the communist country. With a Zacks Rank #3 (Hold), Qualcomm appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report

Microsoft Corporation (MSFT) : Free Stock Analysis Report

Broadcom Inc. (AVGO) : Free Stock Analysis Report

Hewlett Packard Enterprise Company (HPE) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research