Qualcomm FQ3 preview: The datacenter narrative is real, but handset pressure still dominates near-term earnings

Overview

This report is Bernstein's preview of QUALCOMM INC ahead of its FQ326 earnings release after market close on July 29, 2026. The core view is that this quarter's figures should be broadly in line with expectations, but the more important variables over the next few quarters are not one-off results, but the combined impact of handset demand, the pace of AAPL loss, Android weakness, and the margin effect of ramping the datacenter business.

Core views

Bernstein believes Qualcomm's diversification story is real, especially as datacenter revenue begins to contribute more meaningfully, improving the long-term narrative; however, near-term upside is limited because the datacenter target has only just been introduced, while the negative handset narrative may dominate the stock and earnings expectations over the next few quarters. Even with an incremental roughly $5 billion in datacenter revenue next year, weaker handset business, higher operating expenses, and datacenter gross margins below the company average still make market EPS expectations appear too high.

Analysis framework

The report analyzes quarterly forecasts, the full-year model, segment revenue, differences versus market consensus, handset shipment data, AAPL revenue/EPS impact, datacenter targets, valuation multiples, and risk scenarios. The analytical focus is on comparing Bernstein's model with Bloomberg/Street consensus and assessing the directional impact of business mix changes on FY26 and FY27 revenue and EPS.

Methodology notes

• Valuation methodTarget P/E method

  Approximately 20x target multiple applied to average FY2027/28 diluted EPS

  The report states that applying roughly 20x to average FY2027/28 diluted EPS of about $11.75 yields a $235 target price.

• Earnings previewComparison with company guidance and market consensus

  Quarterly revenue, EPS, QCT, and QTL compared with consensus and guidance

  The report compares FQ326, FQ426, and FY26/FY27 forecasts against Bloomberg consensus and company guidance to identify whether earnings expectations are too high.

• Scenario analysisAAPL loss and datacenter offset analysis

  Handset revenue gap, AAPL revenue impact, datacenter revenue targets, and margin drag

  The report believes AAPL chip-related revenue could have an approximately $2.50-3.00 impact on FY27 EPS, while datacenter revenue may offset part of the revenue gap but could bring higher opex and lower gross margins.

Asset mapping & comparison

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

• QUALCOMM INC (QCOM.US)

  Core covered name

  Strengths

  Datacenter ASIC, CPU, accelerators, and connectivity businesses create a new growth curve; diversification narrative is strengthened; valuation still trades at a discount relative to the market and the industry.

  Weaknesses

  Handset chips still account for most chip sales, and weakening smartphone demand, AAPL loss, and Android weakness pressure revenue and EPS.

  Comparison

  Bernstein's FY27 revenue is close to market consensus, but EPS is meaningfully below consensus, reflecting a more cautious view on handset revenue, opex, and datacenter gross margins.

  Risks

  If handset shipments continue to deteriorate, AAPL revenue declines more than expected, memory prices suppress end demand, or datacenter gross margins come in below expectations, earnings expectations may be revised down further.

• AAPL-related baseband/chip revenue

  Qualcomm FY27 downside earnings variable

  Strengths

  Historically contributed substantial revenue and profit and is an important part of Qualcomm's handset business.

  Weaknesses

  The report believes AAPL share will see a significant decline starting later this year, and the FY27 revenue and EPS impact may not be fully modeled by the sell side.

  Comparison

  The company implied handset revenue could decline by $5-6 billion next year, while the market models only about a $3 billion decline; the report believes AAPL alone could decline by about $5 billion.

  Risks

  If the pace of AAPL loss is faster than expected, it will intensify pressure on FQ1 and FY27 earnings.

• Datacenter business

  Potential upside and source of diversification

  Strengths

  Management proposed a revenue target of about $5 billion next year and about $15 billion in the coming years, covering connectivity, CPU, accelerators, and ASIC, making the narrative more credible than before.

  Weaknesses

  In the early ramp stage, the business may require a significant increase in operating expenses, and gross margins may also be below the company average.

  Comparison

  Incremental datacenter revenue can offset part of the handset revenue gap, but Bernstein believes the offset to EPS is insufficient.

  Risks

  Execution pace of targets, customer concentration, ByteDance-related uncertainty, gross margins, and opex investment are all variables to monitor.

Key data

• FQ326 revenue/EPS forecast$9.6 billion / $2.20Broadly in line with market consensus of $9.6 billion / $2.21 and company guidance.
• FQ426 revenue/EPS forecast$9.8 billion / $2.29Below market consensus of $10.0 billion / $2.35.
• FY26 revenue/EPS forecast$42.3 billion / $10.64Below market consensus of $42.5 billion / $10.78, due to weaker handset trends in the second half and the beginning of AAPL loss.
• FY27 revenue/EPS forecast$44.0 billion / $10.16Revenue is in line with market consensus of $44.0 billion, but EPS is below consensus of $10.91.
• FQ326 QCT revenue forecast$8.2 billionBelow Bloomberg consensus of $8.3 billion, in line with company guidance of about $8.2 billion.
• FQ326 QTL revenue forecast$1.25 billionBroadly in line with Bloomberg consensus and company guidance.
• Datacenter revenue targetAbout $5 billion next year, about $15 billion in the coming yearsCovers connectivity, CPU, accelerators, and ASIC, but may come with higher opex and lower gross margins.
• Global smartphone shipmentsCQ2 down 7% YoYThe report believes smartphone growth has broadly turned negative, an important backdrop for lowering Qualcomm's near-term earnings expectations.
• Valuation metricsF25A/F26E/F27E adjusted P/E at 13.9x/15.7x/16.4xThe report believes Qualcomm stock is not expensive, but the valuation discount is insufficient to offset near-term earnings risk.

Impact & implications

For investors, the report sends a neutral signal of "not expensive, but limited upside momentum." The datacenter business strengthens the long-term diversification logic, but the direction of near-term earnings revisions may still be pressured by handset demand, AAPL loss, and cost investment. If management cannot ease concerns around the handset business and margins on the earnings call, the market may continue focusing on FY27 EPS downside risk rather than simply rewarding the datacenter revenue target.

Risks

• Handset shipments and Android demand continue to weaken.
• Rising memory prices suppress handset end demand or lead to de-specification risk.
• AAPL share decline and uncertainty around patent/royalty arrangements after 2027.
• Risks of pressure on China licensing fees, Huawei renewal, and royalties from other Chinese customers.
• While the datacenter business brings incremental revenue, it may come with higher opex and gross margins below the company average.
• QCT gross margin may come under pressure during the datacenter ramp.
• If market consensus does not sufficiently revise down the handset business, FY27 EPS still faces adjustment risk.

What to watch

• FQ326 earnings after market close on July 29 and the 4:45pm ET conference call.
• Management's updated view on smartphone and device growth in 2026 and 2027.
• Whether rising memory prices have already affected handset or PC demand.
• AAPL share changes in this cycle, Dec-Q seasonality, and royalty payment arrangements after 2027.
• Samsung Exynos share, Android weakness, and the competitive landscape in China.
• The FY28 path between the datacenter FY27 $5 billion target and the FY29 $15 billion target.
• Datacenter CPU, ASIC, and accelerator demand, customer risks, and gross margin/opex guidance.
• Near-term performance of adjacent businesses such as automotive, IoT, AI PC, and AR/VR.