Why Qualcomm Stock Fell 9% Despite Beating Earnings Estimates

Given its overall fiscal fourth-quarter numbers posted after Wednesday's close, Qualcomm (NASDAQ: QCOM) shares should have soared on Thursday. Although the chipmaker's revenue fell 7% year over year to $10.4 billion, the dip was expected and came in above analysts' estimates of $10.1 billion. The company also earned $2.17 per share, down from $3 a year earlier, but slightly better than the $2.16 per share analysts had anticipated.

Yet Qualcomm shares cratered following the release of the company's Q4 results, falling nearly 14% at one point on Thursday before paring its loss for the day to just under 10%.

What gives? A closer look shows its quarterly figures -- as well as guidance for the first quarter now underway -- are the culprit.

Image source: Getty Images.

The quarter that was, and the one that will be

Like most other technology outfits, Qualcomm is feeling the impact of higher costs, particularly in memory. Its flagship handset (mobile) business's revenue fell 26% to $5.1 billion. And with a 30% decline, pretax earnings fell considerably more than overall revenue did.

The near future doesn't look especially bright either. Revenue guidance of $10.4 billion to $11.2 billion is markedly lower than the $12.3 billion Qualcomm recorded for fiscal Q1 of last year, when it earned $2.78 per share. Now the company's only looking for a bottom line of between $2.15 and $2.35 per share versus analyst estimates of $2.32 for the three-month stretch ending in December, again reflecting the impact of higher costs and waning demand for its mobile chips.

In recognition that this headwind's been brewing for a while now, QCOM shares are now down 37% from their mid-year peak.

Qualcomm is evolving to address this shift. As CEO Cristiano Amon commented within the company's fourth-quarter report, "Fiscal 2027 marks the start of our non-handset revenue inflection, including the ramp of our Data Center business. Non-handset revenues are projected to grow by more than 60% year-over-year, and we are reiterating our fiscal 2027 Data Center revenue target of $5B." That's up from no data center revenue right now, for perspective, and roughly 13% of the recently ended fiscal year's top line of $37.2 billion.

For more perspective though, Qualcomm's handset revenue fell $3.7 billion last year, reflecting a shrinking relationship with iPhone maker Apple and waning demand for smartphones in general.

The evolution doesn't guarantee anything

There's an argument for seeing hope on the longer-term horizon. Qualcomm confirmed in June that Facebook parent Meta is a data center processor customer, and more are being lined up to be sure.

Just be wary of reading too much into the seemingly solid launch of this business. As a Morgan Stanley analyst commented, "We lack conviction in a three-year ramp in a target-rich environment for AI semis, and it's unclear whether a foundation built on ​custom chips has ​legs." And that assumes the artificial intelligence industry's strong demand remains intact. It may not.

In other words, while this stock may be priced cheaply at only 15 times this fiscal year's projected per-share profit of $10.16, there's no assurance that meaningful growth is in the cards just yet.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Meta Platforms, and Qualcomm. The Motley Fool has a disclosure policy.