Qualcomm's Strong Earnings Mask Growing Tariff Headwinds

The semiconductor giant’s fiscal Q2 results delivered record revenue, but cautious guidance and trade policy risks sent shares reeling—exposing a critical tension between its near-term dominance and long-term challenges.

The Earnings Surge—and the Sell-Off

Qualcomm (QCOM) reported stellar fiscal second-quarter results on April 30, 2025, with revenue soaring to $10.84 billion—surpassing estimates by $180 million—and adjusted EPS hitting $2.85, beating forecasts by 1%. The mobile chip leader’s automotive division surged 59%, IoT revenue climbed 27%, and its licensing business held steady at $1.32 billion. Yet shares plunged 6% in after-hours trading as investors fixated on its cautious outlook for Q3: $10.3 billion in revenue (midpoint) versus Wall Street’s $10.35 billion target.

The disconnect? A stark reminder of Qualcomm’s reliance on global trade stability—and the growing risks of U.S. tariffs.

Tariffs Take Center Stage

Qualcomm’s CFO Akash Palkhiwala admitted during the earnings call that tariffs could “dent revenue” under current policies, even as he downplayed direct operational impacts. The concern isn’t tariffs hitting Qualcomm’s costs but shifting demand patterns. For instance, smartphone buyers in tariff-affected markets might delay purchases, while automakers could scale back investments in Qualcomm’s advanced driver-assistance systems (ADAS) if costs rise.

The market reacted swiftly. shows shares dropping 12.86% over the month, underperforming both the S&P 500 (-5.6%) and its semiconductor peers. Analysts at Bloomberg and Reuters highlighted tariff fears as the primary driver, with one noting, “Qualcomm’s guidance gap suggests investors are pricing in a worst-case scenario for trade tensions.”

Diversification: A Double-Edged Sword

While Qualcomm’s automotive and IoT divisions are thriving—driven by partnerships like its software-defined vehicle collaboration with ECARX—their growth can’t yet offset smartphone market headwinds. Handset chip sales, which account for 64% of QCT revenue, grew just 12% year-over-year. CEO Cristiano Amon emphasized diversification as a “top priority,” but losing Apple as a customer in coming years poses a $1 billion annual revenue risk.

The company’s licensing division (QTL), which generates steady cash flows, also faces stagnation. Its flat revenue ($1.32 billion) signals waning demand for 4G/5G patent fees in saturated markets.

Valuation and the Path Forward

Despite the volatility, Qualcomm remains undervalued relative to peers. Its forward P/E of 11.55 is nearly half the semiconductor sector’s 19.3 average, and its PEG ratio of 1.26 suggests its 11.88% projected revenue growth is underappreciated. Analysts at Zacks maintain a “Buy” rating, citing its robust automotive pipeline and AI-driven innovations like the Snapdragon R2 platform.

Yet the road ahead is fraught. To navigate tariff risks, Qualcomm must accelerate growth in automotive and IoT—a strategy already paying dividends. Its automotive revenue has tripled since 2020, and IoT’s 27% growth reflects wins with Meta’s Quest VR and Windows PCs.

Conclusion: A Company at a Crossroads

Qualcomm’s Q2 results underscore its technological leadership and execution prowess. Its automotive and IoT divisions are firing on all cylinders, while licensing remains a cash cow. However, the tariff cloud and Apple’s looming exit create urgency. Investors should watch two key metrics:
1. Q3 revenue: If it beats the $10.3 billion midpoint, it could signal tariff fears are overblown.
2. Automotive/IoT growth rates: A combined 40%+ expansion would validate Qualcomm’s diversification bets.

For now, Qualcomm’s stock trades at a discount to its growth potential—but its ability to mitigate macro risks will determine whether it’s a bargain or a trap.

Final data point: Qualcomm’s trailing 12-month cash flow of $9.3 billion (vs. $6.2 billion in 2023) provides ample fuel for R&D and share buybacks. This financial flexibility, paired with its $0.89 dividend hike, positions it to weather near-term storms—if global trade policies stabilize.