QUALCOMM Incorporated (QCOM) | The Buildout — AI Infrastructure
The Verdict
Qualcomm designs the processors, modems and connectivity chips that sit inside smartphones, cars, PCs and industrial devices, and licenses the wireless patent portfolio those devices need in order to be sold. It is a fabless designer, so its silicon is built by third-party foundries rather than in its own leading-edge fabs. The company is now trying to stretch the same low-power compute and connectivity into data center silicon, selling custom chips and accelerators to hyperscalers, while its automotive and industrial businesses supply the AI-capable compute already shipping in vehicles and factory equipment.
| Market Cap | — |
| Revenue (TTM) | $44.1B |
| Revenue Growth | +1.9% |
| EBITDA Margin (TTM) | 26.8% |
| Net Debt | $7.0B |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Automotive revenue rose 61% YoY in FQ3 against a guide of about 50%, and management raised its annualized run-rate target to approximately $7B exiting fiscal 2026 from $6B.
- Non-handset QCT revenue grew 28% YoY in FQ3, and management targets $40B of non-handset revenue by fiscal 2029, nearly double its prior $22B target.
- Two custom-silicon engagements with global-scale hyperscalers are in wafer production with purchase orders in hand; revenue starts in the December 2026 quarter.
- The phased data center roadmap adds AI accelerators in fiscal 2027 and server-class CPUs in fiscal 2028.
- The industrial design-win pipeline exceeds $7B, with more than $3.5B secured this fiscal year, against an $8B fiscal 2029 industrial networking and robotics target.
What We’re Watching
- QCT EBT margin is guided to 23%–25% in FQ4, down from 26% printed in FQ3 and 27% in FQ2, on broad-based input-cost increases across wafer, assembly, test and memory.
- Apple product revenue is guided down approximately 50% from the September to the December quarter, with FY27 Apple revenue below the prior guidance of a little over $2 billion.
- HBC Gen 1 has taped out; the silicon demonstration is due in the coming quarters and management says it gates customer commitments beyond the two existing hyperscalers.
- QTL key-OEM license terms expire between fiscal 2027 and 2031, and royalties are capped based on device ASP, limiting the benefit from handset price increases.
The thesis is strengthening on the non-handset side and weakening on the handset side at the same time. Automotive is beating its own guidance, industrial design wins are converting into a quantified pipeline, and two hyperscaler custom-silicon engagements have moved from disclosed interest to purchase orders and wafer starts with revenue dated to the December quarter. Against that, the Apple revenue base is unwinding faster than previously guided, QCT EBT margin is guided lower, and data center — the least proven piece — is still pre-revenue and gated on a silicon demonstration the company has not yet given. The open question is whether non-handset growth of greater than 60% in fiscal 2027 actually replaces total Apple product revenue, as management states.
Earnings Beat
Qualcomm reported FQ3 FY2026 revenue of $9.9B, at the high end of guidance, with consolidated gross margin of 53.1% and non-GAAP EPS of $2.21. QCT revenue was $8.5B at a 26% EBT margin and QTL $1.3B at 69%. The standout line was automotive: a record $1.6B, up 61% YoY, above the roughly 50% growth guided.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $9.9B | $10.6B | $10.4B | −4.0% |
| Gross margin | 53.1% | 53.8% | 55.6% | -250bps |
| EBITDA | $2.0B | $2.7B | $3.4B | −40.2% |
| EPS | $1.87 | $6.88 | $2.43 | −22.8% |
| QCT automotive revenue | $1.6B | $1.3B | n/a | +61% YoY |
| QCT EBT margin | 26% | 27% | n/a | — |
Our 2 near-term custom silicon wins will be revenue generating in the December quarter, and we have begun wafer production.— Cristiano Amon, CEO, 2026-07-29
Management tone: Management's posture moved from describing a single hyperscaler engagement to reporting two, both in wafer production with purchase orders, and from framing data center as aspirational to dating its first revenue to the December quarter. At the same time the company named its own proof gap, saying investors want more evidence it can execute as a new entrant, and it volunteered a 1.5%–2% gross-margin drag from data center mix. On handsets the tone turned more defensive: the Apple step-down was guided lower, and a question about whether Qualcomm is effectively exiting Apple faster than planned was reframed rather than confirmed.
Management Guidance
For the September 2026 quarter management guides QCT revenue of $8.4B–$9.0B at 23%–25% EBT and QTL revenue of $1.2B–$1.4B at 68%–72% EBT on normal seasonal trends. QCT handset is guided to about $5.2B, on sequential Android growth offset by lower Apple revenue; IoT is guided roughly flat YoY, with double-digit growth in industrial networking and robotics offset by memory constraints on tablets and other consumer products; automotive is guided to about 60% YoY growth and another record quarter. Non-GAAP operating expenses reflect the Modular acquisition and continued investment in the data center product roadmap ahead of revenue ramp.
Trajectory
Revenue has decelerated through fiscal 2026: $12,252M in the December quarter, $10,599M in March and $9,947M in June, with the June quarter down about 4% from $10,365M a year earlier. Consolidated gross margin slipped to 53.1% from 55.6%, and EBITDA margin to 20.3% from 32.6%. Underneath the total the mix is rotating — automotive up 61% YoY and IoT up 9% in FQ3, against a handset line guided to roughly $5.2B from $6B in FQ2 — while memory-driven input costs pushed QCT EBT margin to 26% from 27%, with a 23%–25% guide for FQ4. Automotive and IoT together were roughly 34% of total revenue in FQ3 on disclosed segment figures, a derived share rather than a company-disclosed mix.
The Model
The model's locked projections put FY+1 revenue at $48,100M with EBITDA of $12,506M, a 26.0% margin, and FY+2 revenue at $55,200M with EBITDA of $14,794M, a 26.8% margin. FY+1 sits above the $44,069M trailing-twelve-month base, anchored by automotive growth guided near 60% and by a first data center revenue line starting in the December quarter. FY+2 depends on the data center ramp scaling toward management's fiscal 2027 $5B target and on the automotive and industrial design-win pipeline converting.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $44.3B | $48.1B | $55.2B |
| YoY Growth | — | +8.6% | +14.8% |
| EBITDA | $14.0B | $12.5B | $14.8B |
| EBITDA Margin | 31.5% | 26.0% | 26.8% |
Projections are the median of 5 independent model runs. The model’s revenue sits 12.2% above analyst consensus.
For the September 2026 quarter management guides QCT revenue of $8.4B–$9.0B at 23%–25% EBT and QTL revenue of $1.2B–$1.4B at 68%–72% EBT on normal seasonal trends. QCT handset is guided to about $5.2B, on sequential Android growth offset by lower Apple revenue; IoT is guided roughly flat YoY, with double-digit growth in industrial networking and robotics offset by memory constraints on tablets and other consumer products; automotive is guided to about 60% YoY growth and another record quarter. Non-GAAP operating expenses reflect the Modular acquisition and continued investment in the data center product roadmap ahead of revenue ramp.
What Could Go Right — and Wrong
- The two hyperscaler custom-silicon engagements ramp as scheduled from the December quarter and expand into follow-on generations.
- HBC Gen 1 silicon demonstrates at competitive performance, opening merchant accelerator and CPU engagements beyond the two existing customers.
- Double-digit price increases take effect within the guided couple of quarters and QCT gross margin returns to the 48%–50% historical range.
- Automotive compounds toward the more than $24B automotive-plus-IoT fiscal 2029 target, with BMW and Stellantis programs extending past 2030.
- Data center revenue tracks toward the guided fiscal 2027 and fiscal 2029 targets, and non-handset passes 50% of QCT in fiscal 2027.
- Memory and input-cost inflation persists beyond management's couple-of-quarters assumption, keeping handset demand depressed and QCT margin below its historical range.
- Apple revenue steps down further than the guided approximately 50% sequential decline, leaving non-handset growth to cover a larger hole.
- Data center stays pre-revenue in material terms, or the HBC demonstration slips, leaving the fiscal 2029 data center target without a product behind it.
- QCT gross margin absorbs the 1.5%–2% data center mix drag while operating expenses stay elevated ahead of data center revenue.
- QTL license renewals in the fiscal 2027–2031 window come in below current terms, hitting the highest-margin part of the company.
Looking Ahead
The next twelve months turn on three dated checkpoints. The September 2026 quarter is when Apple revenue steps down roughly 50% sequentially and automotive is guided to about 60% growth; the December 2026 quarter is when custom-silicon revenue from two hyperscalers begins; and the months after that are when HBC Gen 1 silicon is demonstrated, which management says is what opens customers beyond the first two. The fiscal 2027 guide, once given, is the first time the raised long-term targets become annual numbers.
- September 2026Fifth-gen chassis ramp — Fifth-generation Snapdragon Digital Chassis begins its commercial ramp.
- December 2026 quarterData center revenue starts — Custom-silicon revenue from two hyperscalers is scheduled to begin.
- Coming quartersHBC silicon demonstration — Gates customer decisions beyond the two existing hyperscaler wins.
- Mid-2027First HBC launch — First high-bandwidth compute solution launch, after the silicon demo.
- Fiscal 2027Non-handset inflection — Growth guided above 60% YoY; non-handset above 50% of QCT.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $39.0B | $44.3B | $44.1B | +13.7% |
| Gross Margin | 56.2% | 55.4% | 54.2% | 80bps |
| EBITDA | $11.8B | $14.0B | $11.8B | +18.5% |
| EBITDA Margin | 30.2% | 31.5% | 26.8% | +129bps |
| Net Income | $10.1B | $5.5B | $9.3B | -45.4% |
| Free Cash Flow | $11.2B | $12.8B | $10.4B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)54.2%
- EBITDA Margin (TTM)26.8%
- Net Margin (TTM)21.0%
- ROIC23.3%
- FCF Conversion88.3%
- SBC / Revenue7.4%
The Company
Qualcomm designs the integrated circuits and licenses the patents that make connected devices work. Its Snapdragon family covers mobile platforms, compute platforms, automotive platforms and sound platforms; the Qualcomm Dragonwing family covers industrial IoT and edge networking products. QTL licenses the wireless patent portfolio that manufacturers need in order to sell devices at all. The 10-K describes Qualcomm as a global technology leader bringing intelligent computing everywhere through on-device AI, high-performance and low-power computing and advanced wireless connectivity.
Qualcomm is fabless and owns no leading-edge wafer fabrication. Its owned manufacturing is limited to front-end production for RFFE modules and RF filters in Germany and Singapore, plus back-end manufacturing in China and Singapore. The 10-Q adds that the primary warehouses storing finished goods are in Singapore and that a significant portion of the workforce, including engineering and technical staff, is based in India. The company depends on a limited number of third-party suppliers for procurement, manufacture, assembly and testing.
Business Segments
Competitive Landscape
Qualcomm's 10-K lists its competitors as Broadcom, HiSilicon, MediaTek, Mobileye, Nvidia, NXP Semiconductors, Qorvo, Samsung, Skyworks, Texas Instruments and UNISOC. In handsets and automotive it holds reference positions: it won what the company describes as a highly competitive selection to become BMW's lead compute silicon provider, and its Snapdragon platform powers approximately 70% of Samsung's flagship devices. In data center it is the new entrant, against an incumbent platform in Nvidia, while Arm is described in the material as both enabling Qualcomm and competing with it by building its own CPU. Several counterparties hold more than one role — Apple is a customer and a competitor, Samsung is a customer, competitor and named foundry supplier, and Arm is both supplier and competitor.
- NvidiaNamed in the 10-K competitor set. The supply-chain read-through describes it as the incumbent data center platform and notes it is expanding into server CPUs.
- MediaTekNamed in the 10-K competitor set; not discussed in the material beyond the list.
- BroadcomNamed in the 10-K competitor set; not discussed in the material beyond the list.
- SamsungNamed in the 10-K competitor set; also a customer and one of the company's named foundry suppliers.
- ArmDescribed in supply-chain disclosures as both enabling Qualcomm and a competitor building its own CPU.
Supply Chain
Qualcomm is fabless and owns no leading-edge wafer fab, buying foundry, assembly and test capacity from a limited supplier set. It owns front-end RFFE and RF filter manufacturing in Germany and Singapore, and back-end manufacturing in China and Singapore.
More on QCOM: Earnings recap