Is QCOM Stock a Buy as Auto and AI Growth Offset Handset Weakness?

Qualcomm's Diversification Case Is Strengthening

Combined Qualcomm CDMA Technologies automotive and Internet of Things revenues grew 28% year over year in the fiscal third quarter of 2026. Management expects non-handset revenue growth to accelerate from 24% in fiscal 2026 to more than 60% in fiscal 2027.

Non-handsets are expected to represent more than half of Qualcomm CDMA Technologies revenues in fiscal 2027. Stellantis N.V. STLA expanded its multi-year technology collaboration with Qualcomm in May 2026 across cockpit, connectivity and driver-assistance systems, adding another example of how vehicle programs can support the shift beyond smartphones.

QCOM Faces a Steep Apple and Handset Reset

Qualcomm expects its modem share in the upcoming iPhone launch to be materially below its prior 20% assumption. Apple product revenues are expected to fall about 50% sequentially from the September to December 2026 quarters, while fiscal 2027 Apple product revenues are expected to come in below the prior outlook of slightly more than $2 billion.

Apple Inc. AAPL has introduced the C1, its first internally designed cellular modem, in the iPhone 16e. Qualcomm expects fiscal 2027 non-handset growth to replace fiscal 2026 Apple product revenues, but that substitution depends on newer businesses scaling as planned.

Qualcomm's New Growth Comes With Margin Costs

Qualcomm CDMA Technologies' earnings-before-taxes margin fell to 26% in the fiscal third quarter from 30% a year earlier. Qualcomm guides for a 23%-25% margin in the fiscal fourth quarter as higher product costs and lower revenues weigh on profitability.

Investment is also rising ahead of the data center ramp. Research and development spending increased $381 million to $2.61 billion in the latest quarter, while early custom silicon revenues are expected to dilute the segment's gross margin by 1.5-2 percentage points.

QCOM Trades at a Discount to Its Own History

QCOM trades at 4.0X trailing 12-month enterprise value-to-sales, below its five-year median of 4.1X. Its 15.9X forward 12-month price-to-earnings multiple is also below the five-year median of 16.6X.

The discount offers some valuation support, but it is not unusually wide. The Zacks Consensus Estimate points to higher revenues in fiscal 2027 than in fiscal 2026, while earnings per share are expected to decline, leaving the stock dependent on diversification delivering enough growth to offset margin and handset pressure.

Qualcomm's Scores Keep the Case Balanced

The buy case is improving as automotive, Internet of Things and data center opportunities become more meaningful. Handset weakness, Apple insourcing and near-term margin dilution still keep the risk-reward balance from looking decisively favorable.

QCOM currently carries a Zacks Rank #3 (Hold). Its Value Score of C sits in the middle of the A-to-F scale, while its Growth Score of D, Momentum Score of F and VGM Score of F are weaker. Those readings do not provide the favorable A or B Style Score confirmation typically sought alongside top-ranked stocks.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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