Qualcomm's Strategic Diversification: Can It Offset Apple's Long-Term Revenue Risk?

Qualcomm's Q2 2025 earnings report paints a complex picture for investors: a 17% year-over-year revenue increase driven by robust growth in automotive and IoT segments, juxtaposed with the looming shadow of Apple's self-developed modem transition. As the iPhone maker inches closer to full independence from Qualcomm's chipsets, the question becomes whether the company's diversification into AI, automotive, and IoT can sustain its financial momentum—and whether this transition justifies a long-term buy or wait strategy in 2025.

The Apple Conundrum: A Shifting Revenue Pillar

Apple has historically been Qualcomm's largest customer, contributing 27% of total revenue in Q2 2025. However, the iPhone maker's C1 5G modem, introduced in the iPhone 16e, signals a strategic shift toward vertical integration. Qualcomm's CEO, Cristiano Amon, acknowledged this risk during the Q2 earnings call, noting that non-Apple handset revenue grew 15% year-over-year despite the transition. While this diversification is promising, the loss of Apple's modem business could reduce Qualcomm's smartphone segment revenue by up to 10% annually over the next three years, according to JPMorgan analysts.

Automotive and IoT: The New Growth Engines

Qualcomm's QCT segment, which includes automotive and IoT, delivered a combined $2.66 billion in Q2 2025 revenue—a 23% year-over-year increase. The automotive segment alone grew 21% to $984 million, driven by 30 new vehicle designs and partnerships with automakers like BMW for its Neue Klasse line. The company's Snapdragon Digital Chassis is now embedded in 50+ vehicle programs globally, with revenue on track to hit $1 billion in Q4 2025.

The IoT segment, meanwhile, surged 24% to $1.68 billion, fueled by AI-enabled smart glasses (e.g., Meta's Ray-Bans) and industrial IoT solutions. Qualcomm's strategic acquisition of Alphawave Semi and its focus on edge AI—such as integrating 1 billion parameter models into smart glasses—position it as a leader in on-device AI processing. These segments are critical to Qualcomm's long-term goal of achieving $22 billion in combined automotive and IoT revenue by 2029.

AI and Data Centers: A High-Stakes Bet

While AI-related revenue remains a minor contributor today, Qualcomm's investments in NPU-based inference accelerators and partnerships with NVIDIA and HUMAIN for AI data centers signal a bold pivot. The company's Oryon CPU, designed for high-margin AI workloads, and its planned integration with NVLink Fusion architecture could unlock new revenue streams by 2028. However, these initiatives are still in early stages, and meaningful contributions to top-line growth are not expected until fiscal 2028.

Risk Mitigation and Strategic Resilience

Qualcomm's diversification strategy is bolstered by its strong liquidity ($14.3 billion in cash reserves) and a 56.21% gross margin in FY 2025. The company's focus on high-growth areas—such as AI PCs (Snapdragon X Series) and automotive ADAS—provides a buffer against smartphone market volatility. Additionally, Qualcomm's 90% return of capital to shareholders via dividends and buybacks reinforces its commitment to shareholder value, even as it reinvests in long-term opportunities.

Investment Implications: Buy or Wait?

For long-term investors, Qualcomm's strategic pivot offers a compelling case. The automotive and IoT segments are on a clear growth trajectory, with combined revenue expected to outpace smartphone segment growth by 2027. However, the transition period (2026–2027) may see constrained revenue growth (low single digits) as Apple's modem exit materializes.

Buy Case: Investors with a 5–7 year horizon should consider Qualcomm's undervalued forward P/E (16.36) and its leadership in edge AI and automotive silicon. The company's ecosystem partnerships and R&D reinvestment ($12 billion annually) position it to capitalize on the $300 billion edge AI market by 2030.

Wait Case: Short-term volatility from macroeconomic pressures (e.g., US-China trade dynamics) and the AI/data center ramp-up period may test patience. Investors seeking immediate growth should wait for clearer signs of AI monetization or a dip in valuation.

Conclusion

Qualcomm's diversification into automotive, IoT, and AI is not just a defensive move—it's a strategic repositioning to lead in the next era of computing. While the loss of Apple's modem business poses near-term risks, the company's long-term growth levers are robust. For investors willing to ride out the transition, Qualcomm's stock offers a high-conviction opportunity to benefit from the AI and automotive revolutions.