Qualcomm (QCOM) earnings preview: Navigating turbulence amid semiconductor challenges and growth opportunities

In the wake of Advanced Micro Devices' (AMD) upbeat earnings, Qualcomm Inc. (QCOM) is set to report its third-quarter results tonight, with the stock trading on a positive note despite recent setbacks. Investors are eager to see how the chip giant will fare against a backdrop of tightening export controls and a cautious market sentiment.

This article delves into the key factors that could influence QCOM's earnings, focusing on its strong sectors like 5G Android phones and Automotive, while addressing the lingering IoT challenges.

Q3 Earnings Expectations

Analysts are forecasting Q3 earnings per share (EPS) of $2.25 and revenue of $9.2 billion. Despite the overall market pressure, QCOM's Q2 report showcased resilience, with the company exceeding expectations and providing guidance for Q3 growth.

The midpoint of Q3 guidance for EPS and revenue suggests a focus on maintaining momentum despite the headwinds.

5G and AI-Driven Growth

Despite the global handset market's tepid growth, QCOM's 5G segment remains a bright spot. AI-driven applications are fueling demand, with the company's high-end smartphone offerings, particularly in China, seeing a significant boost.

As the largest market for QCOM, China's contribution to revenue growth underscores the potential for continued expansion in this area.

Automotive Rebound

QCOM's Automotive segment is experiencing rapid adoption of its Snapdragon Chassis, with revenue growth accelerating from 31% in Q1 to 35% in Q2.

This trajectory indicates a promising future, as CEO Cristiano Amon projects the business to generate over $4 billion in revenue by FY26. The sector's resilience could provide a counterbalance to IoT-related challenges.

IoT Challenges and Recovery

While IoT revenue faced a decline last quarter, QCOM is witnessing a gradual recovery. The 9% sequential growth in Q2, coupled with CEO Amon's optimism about the normalization of demand in FY24, suggests that the segment is stabilizing.

However, inventory glut issues still persist, and investors will be keen to hear updates on how QCOM plans to navigate this ongoing challenge.

Bullish vs. Bearish Outlook

Despite the recent sell-off, QCOM's strong fundamentals and potential for growth in key sectors offer a cautiously optimistic outlook. Bulls argue that the company's ability to capitalize on AI-driven technologies and the recovery in the Automotive market will support earnings.

However, bears remain cautious due to the semiconductor industry's vulnerability to external factors and the lingering IoT challenges.

Conclusion

As Qualcomm readies for its Q3 earnings report, investors should consider the company's resilience in key growth areas, the potential for continued 5G and Automotive momentum, and the ongoing IoT recovery.

While the stock has been battered by recent setbacks, a solid earnings performance and strategic positioning could potentially spark a recovery. For those seeking a long-term investment, a careful analysis of QCOM's ability to adapt and capitalize on emerging technologies will be crucial in determining its investment value.