Why Qualcomm Stock Could Be Heading For A Correction?

Qualcomm (QCOM) has faced challenges in the past. Its stock dropped by more than 30% over a period of less than two months in 2020, leading to a loss of billions in market value and erasing substantial gains in a single downturn. If past trends are an indicator, QCOM stock is susceptible to abrupt and significant downturns.

The Qualcomm Incorporated logo is being displayed at their pavilion during the Mobile World Congress in Barcelona, Spain, on February 28, 2024. Qualcomm, an American multinational corporation, is creating semiconductors, software, and services related to wireless technology and is the creator of the Snapdragon suite of system on a chip (SoC) semiconductor products for mobile devices. (Photo by Joan Cros/NurPhoto via Getty Images)

NurPhoto via Getty Images

In particular, we identify these risks:

1. Margin Compression arising from an Unfavorable Product Mix and Increasing Costs
2. Handset Revenue Decline caused by Supply Chain Disruptions
3. Escalating Competition in the Premium Tier Android Market

Trefis: QCOM Stock Insights

Risk 1: Margin Compression arising from an Unfavorable Product Mix and Increasing Costs

• Details: Net income decreased by 6% YoY even with a 5% increase in revenue (Q1 2026), Possibility of further EPS decline if the trend persists
• Segment Affected: QCT (Qualcomm CDMA Technologies)
• Potential Timeline: Immediate and ongoing throughout fiscal 2026
• Evidence: Gross margin fell to 55% from 56% a year prior (Q1 2026 10-Q), Operating margin narrowed by approximately 300 bps YoY (Q1 2026), R&D expenses rose to 20% of revenue (Q1 2026)

Risk 2: Handset Revenue Decline caused by Supply Chain Disruptions

• Details: Q2 2026 revenue guidance of $10.2B – $11.0B, falling short of consensus expectations, Adverse effect on near-term revenue and earnings growth
• Segment Affected: QCT – Handsets
• Potential Timeline: Upcoming 1-2 Quarters (Q2-Q3 2026)
• Evidence: Management indicated ‘industry-wide memory supply constraints’ affecting handset demand (Q1 2026 Earnings Call), OEMs in China scaling back handset production and channel inventory (Q1 2026 Earnings Call)

Risk 3: Escalating Competition in the Premium Tier Android Market

• Details: Market share loss with key Android OEMs, Increased pricing pressure, further diminishing gross margins
• Segment Affected: QCT – Handsets
• Potential Timeline: Fiscal year 2026 and beyond
• Evidence: Samsung planning to use its in-house Exynos 2600 for a significant number of Galaxy S26 models (February 2026), MediaTek gaining presence with its Dimensity series in the premium market, competing on performance and pricing (January 2026)

What Is The Worst That Could Happen?

An examination of QCOM’s risks during previous crises reveals severe downturns even with strong fundamentals. It fell nearly 79% during the Dot-Com crash and around 48% amid the Global Financial Crisis. Inflationary pressures and Covid caused drops of 35-44%, while the correction in 2018 still resulted in a decline over 33%.

Moreover, stocks can decline even in favorable market conditions – consider events such as earnings reports, business updates, and outlook revisions. Read QCOM Dip Buyer Analyses to understand how the stock has bounced back from significant declines in the past.

Is Risk Manifesting in Financials Yet?

• Revenue Growth: 10.3% LTM and 2.3% last 3-year average.
• Cash Generation: Nearly 28.8% free cash flow margin and 27.2% operating margin LTM.
• Valuation: Qualcomm stock is trading at a P/E multiple of 29.0

Summary

Trefis

If you seek further information, read Buy or Sell QCOM Stock.

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