Qualcomm's datacenter narrative strengthens, but handset and margin pressure limits near-term upside

Overview

This report reviews Qualcomm's Analyst Day held in New York. The company emphasized diversification from smartphones into datacenter, automotive, IoT, PC/XR, and edge AI devices, with the key new highlight being its datacenter product portfolio, including connectivity, custom ASICs, AI accelerators, and CPUs. Bernstein acknowledges that these long-term targets improve the quality of the business mix, but still maintains Market-Perform because smartphone and margin pressures are likely to affect mid-term earnings before datacenter ramps up.

Core views

The core view is that the long-term story is better, but the mid-term still faces pressure. On the positive side, Qualcomm set targets of about $65B in FY29 revenue, EPS above $18, $15B+ in datacenter, and $10B in automotive, representing a clear upward revision versus the prior roughly $50B revenue framework. On the cautious side, the handset business is expected to decline from about 65% of QCT revenue in FY26 to about 33% in FY29, while the Apple exit and slower Android growth will pressure handset revenue; meanwhile, assumed datacenter gross margins are below the company average, and investment in the roadmap will raise expenses, meaning FY27 EPS may still be revised down rather than up.

Analysis framework

The report evaluates QCOM using management target breakdowns from the Analyst Day, segment revenue bridges, income statement modeling, scenario sensitivity, and valuation multiple adjustments. Bernstein incorporates datacenter and automotive/IoT into its forecasts, while lowering handset revenue and adjusting gross margin and expense assumptions; the valuation multiple is raised from 14x to 20x to reflect an improved business mix toward datacenter and automotive.

Methodology notes

• Company fundamentalsSegment revenue bridge

  Break down FY26 to FY29 revenue changes by Handsets, Auto, Datacenter, IoT, and Licensing

  This framework shows total revenue rising from $42.3B in 2026E to $64.8B in 2029E, with the incremental growth mainly coming from datacenter, automotive, and IoT, offsetting the AAPL exit and handset revenue decline.

• Scenario analysisFY29 EPS sensitivity analysis

  Test the FY29 EPS range using combinations of datacenter revenue and PC/VR/AR revenue

  The report notes that in a downside scenario where datacenter falls significantly short of target and Personal AI Compute growth is limited, FY29 EPS could still be around $15; under the company's target scenario, EPS would be about $18.12.

• Valuation methodsTarget price multiple method

  Raise the target valuation multiple to reflect the change in business mix

  Bernstein raised the multiple from 14x to 20x and increased the target price from $140 to $235, but maintained Market-Perform because the stock price has already begun to price in part of the long-term FY29 improvement.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• QUALCOMM INC (QCOM.US)

  Core covered company

  Strengths

  The datacenter roadmap adds a new FY29 revenue target of $15B+; the automotive business target is raised to $10B; IoT and Personal AI/Compute provide diversified growth; the company has a full-stack layout spanning connectivity, AI accelerators, CPUs, and software abstraction layers.

  Weaknesses

  Handset revenue still faces pressure from slower Android growth and the Apple exit; datacenter product gross margins are below the company's average chip level; FY27 expense investment is rising; the PC/XR growth path is not sufficiently quantified.

  Comparison

  Compared with the prior Investor Day FY29 revenue outlook of about $50B, this new target of about $65B is mainly driven by additional datacenter contribution, while handsets' share of QCT revenue falls from about 65% in 2026E to about 33% in 2029E.

  Risks

  Datacenter customer adoption and revenue ramp may fall short of expectations, AI accelerator competition is intense, handset demand may deteriorate further, margin dilution may exceed expectations, and the stock price may already reflect the long-term targets in advance.

• META PLATFORMS INC (META.US)

  Related party as datacenter CPU customer

  Strengths

  Qualcomm said it will begin supplying CPUs to Meta in the second half of FY28, with Dragonfly C1000 targeting agentic, general-purpose, and head node use cases.

  Weaknesses

  The report does not disclose specific order size, pricing, margins, or long-term supply share.

  Comparison

  Meta is identified as a clue on the CPU customer side, while the two hyperscaler custom silicon customers were not named.

  Risks

  Project timing, technical validation, competing suppliers, and changes in datacenter capital spending could affect realization.

Key data

• Rating and target priceMarket-Perform; target price $235, previous target price $140The report maintains QCOM at MP while raising the target price.
• Current price$197.41Table date is 2026-06-24.
• 2029E total revenue targetAbout $64.8B / management about $65BAbout $15B higher than the previous roughly $50B outlook, mainly driven by datacenter.
• 2029E EPS target>$18; model table shows $18.12The company target is above $18, and the report's model table shows $18.12.
• 2029E datacenter revenue$15B+About $0.3B in FY26, about $5B in FY27, and about $15B+ in FY29.
• Datacenter TAM$1T+Including Connectivity $65B, Custom Silicon $115B, AI Accelerators $680B, and CPUs $200B.
• 2029E automotive revenue target$10BPrevious target was about $8B; FY25-FY29 CAGR is about 26%, and the automotive pipeline increased from $45B to $65B.
• 2029E IoT revenue target$14B+About $6B comes from Personal AI and Compute, and about $8B comes from Industrial, Networking and Robotics.
• Change in handset revenueHandsets 2026E $23.8B, 2029E $19.6BAAPL declines from $6.8B to $0, while Android rises from $16.9B to $19.6B.
• Gross margin change2026E 55.2%, 2029E 51.6%The assumed datacenter gross margin is about 40%, diluting overall gross margin.
• Operating expense ratioAbout 19%-20% of revenue in 2029E; model shows 19.5%Operating expenses are expected to grow at a double-digit rate in FY27.
• Capital returnLow- to mid-single-digit dividend growth, and return most free cash flow to shareholdersA new roughly $20B buyback authorization was announced in March 2026.

Impact & implications

For investors, QCOM's long-term investment narrative is expanding from a smartphone cyclical stock into a datacenter AI, automotive electronics, and edge AI platform company, which in theory can support a higher valuation multiple. However, over the next few quarters, the Apple exit, weak Android demand, a challenging memory environment, early datacenter gross margin dilution, and rising R&D investment may suppress earnings, so the report does not recommend equating the long-term Analyst Day targets directly with near-term earnings upgrades.

Risks

• Android handset revenue is expected to be flat to slightly down in FY27, and the Apple exit will drive a roughly $5B-$6B year-over-year decline in total handset revenue.
• Although datacenter revenue targets are $5B in FY27 and $15B+ in FY29, there are still execution risks around customers, share, and volume production timing.
• Datacenter products have gross margins below the company's average chip level, which could pressure overall gross margin.
• Operating expenses are expected to grow at a double-digit rate in FY27, which may pressure near-term margins and EPS.
• The growth trajectory for PC, VR, AR, and Personal AI/Compute lacks sufficient quantified disclosure.
• As the stock approaches $225, the long-term FY29 improvement may already be partially reflected in valuation.

What to watch

• Whether FY27 datacenter revenue can reach about $5B, especially the phased ramp in Connectivity, Custom Silicon, AI Accelerators, and CPUs.
• Orders, volume production, and revenue recognition timing for the two hyperscaler custom silicon customers and the Meta CPU project.
• Whether Android handset revenue in FY27 will be flat to slightly down as management indicated, and the actual impact of the Apple exit.
• Whether datacenter business gross margin will be close to the report's assumed 40%, and the extent of dilution to overall gross margin.
• Whether FY27 operating expense growth and its pressure on EPS exceed expectations.
• The speed at which the $65B automotive pipeline converts into the FY29 $10B revenue target.
• Actual design wins, channel expansion, and revenue contribution from PC, XR, and smart glasses products within Personal AI and Compute.