Qualcomm Plans to Enter the Data Center Market, Soaring 10% After Hours

Qualcomm announced its Q2 financial report for the fiscal year 2026 after the market closed on April 29th. The adjusted earnings per share were $2.65, higher than the analysts' expected $2.56; revenue grew by 3% year-on-year to $10.6 billion, essentially in line with market expectations.

However, the guidance for the third quarter significantly fell short of expectations. The mobile chip business continued to face pressure, with the stock price initially falling by about 4% after the market closed, then quickly surging by more than 10%. The market's expectations for the company's long-term growth potential continue to support the stock price.

The mobile chip business was the biggest drag this quarter. Mobile business revenue declined by 13% year-on-year to $6.02 billion, and the overall chip business revenue was $9.07 billion, slightly below the market expectation of $9.13 billion. In contrast, the automotive business grew by 38% year-on-year to $1.32 billion, and the Internet of Things and technology licensing business also grew by 9% and 4.8%, respectively, forming the main pillar of the performance.

The third-quarter guidance has disappointed the market. Qualcomm expects the third-quarter revenue range to be between $9.2 billion and $10 billion, with a midpoint of about $9.6 billion, far below the analysts' previous expectation of $10.26 billion; the adjusted earnings per share guidance range is between $2.10 and $2.30, also below the expected $2.43.

The shortage of memory chips is the core source of pressure. Counterpoint Research data shows that global smartphone shipments in the first quarter of this year declined by 6% year-on-year, and this shortage situation may continue until the end of next year.

IDC also pointed out that smartphone shipments in the first quarter fell by 4.1% to 289.7 million units, ending the continuous growth that has been ongoing for ten quarters since the middle of 2023, and warned that this is just a prelude to deeper pressures in the remaining time of 2026.

However, Qualcomm CEO Cristiano Amon said in the subsequent earnings call that the company has been able to "see the bottom," and expects the smartphone market to start rebounding after the third quarter.

His judgment is based on Qualcomm's technology licensing business, whose revenue is directly linked to the shipment plans of mobile phone manufacturers, thus possessing a certain leading indicator significance. Qualcomm also stated in the earnings report that the third quarter will be the bottom for China's Android smartphone revenue, and the automotive business will also achieve year-on-year accelerated growth in the third quarter.

Against the backdrop of pressure in the mobile business, the data center strategy has become another main thread of market concern and is also one of the core factors for the stock price surge after the market closed.

Amon revealed that Qualcomm is jointly developing three types of chips with customers: CPUs, inference acceleration chips, and custom application-specific integrated circuits (ASICs) - the latter is an important source of revenue for competitors such as Broadcom and Marvell.

He specifically mentioned that the acquisition of AlphaWave, a connectivity chip IP company, has provided Qualcomm with key technical support to enter the custom ASIC business. The company expects to start the initial delivery of custom chips to a large-scale hyper-scale cloud computing customer in the second half of 2026.

This is equivalent to drawing a new growth curve that is independent of the dependence on the mobile phone cycle for the market - against the background of high valuations of data center chip stocks such as Nvidia and Broadcom, Qualcomm's ability to truly enter this market could be quite promising.

However, several analysts have downgraded Qualcomm's rating and target price after the earnings report.

Bernstein Research analyst Stacy Rasgon pointed out that the overall shipment of smartphones in the smartphone market this year may face a double-digit year-on-year decline, and Qualcomm's high exposure to the consumer electronics market makes its performance long seen as a barometer of industry prosperity.

Nevertheless, some analysts, based on the expected earnings per share of more than $11 for fiscal year 2027, point out that the current valuation is less than 14 times, believing that the stock price correction provides a buying opportunity.

The subsequent focus of attention is on the investor day on June 24th, when Qualcomm will elaborate on the data center and "Physical AI" strategic roadmap in detail.

In addition, Amon will give a speech at the Computex conference in Taiwan