Qualcomm's AI and Auto Growth Story Faces Off Against Structural Headwinds

What happened

A Seeking Alpha article projects Qualcomm for an EPS rally, citing AI-driven handset ASP uplift and accelerating automotive revenues with an estimated 8.5% boost for FY2026. This aligns with recent financials showing FY25 revenue up 14% to $44.3B, auto/IoT growth of 27%, and robust TTM FCF of $12.8B, supporting the diversification narrative. However, the master report highlights deep-seated risks, including Apple's imminent modem insourcing expected to significantly hurt QCT revenue, customer concentration with three key accounts comprising over half of sales, and ongoing antitrust scrutiny of licensing fees. While AI PCs and cloud opportunities offer further upside, these new growth vectors must convincingly offset smartphone cyclicality and regulatory pressures that could compress margins. Investors must therefore assess whether near-term EPS optimism can withstand the structural erosion and legal challenges Qualcomm faces in its core markets.

Implication

The projected 8.5% EPS uplift for FY2026 from AI and auto growth suggests re-rating potential if Qualcomm can leverage premium Android demand and automotive ADAS expansion to reduce cyclicality. However, Apple's modem insourcing is a material overhang that could erode QCT revenue over time, demanding robust offset from non-Apple segments like auto, IoT, and PCs to maintain growth. Regulatory risks from antitrust actions on licensing fees and geopolitical exposure in China add uncertainty to cash flows, potentially capping valuation multiples despite strong FCF. Management's FY26 guidance and recent acquisitions hint at execution capability, but investors must monitor QCT mix shifts and auto/PC traction closely to validate the diversification thesis. Ultimately, while the DCF implies 53% upside, the investment case hinges on mitigating tail risks through careful risk management and avoiding overreliance on optimistic near-term forecasts.

Thesis delta

The Seeking Alpha article introduces a more aggressive near-term EPS growth narrative focused on AI and auto, but it does not materially shift the core thesis from the master report. The delta lies in a heightened emphasis on whether AI-driven handset upgrades and automotive acceleration can sustainably offset Apple insourcing and regulatory pressures within the next 6-18 months. Investors should upgrade their stance only if subsequent quarters show clear evidence of diversification gains outweighing smartphone erosion, otherwise maintaining a cautious 'potential buy' with valuation discipline.