Qualcomm (QCOM.US) Q4 earnings report triggers a “long and empty confrontation” on Wall Street: data centers have become a long-term growth opportunity, and mobile phones and gross margins are still short and painful

The Zhitong Finance App learned that after Qualcomm (QCOM.US) released its latest quarterly earnings report, the Wall Street Investment Bank clearly disagreed on the chip company's short-term profit prospects and long-term growth options.

Wall Street generally recognises Qualcomm's data center business volume prospects and sees it as a key growth opportunity to hedge against the decline in the mobile phone business; however, rising component costs, pressure on gross margins, and continued weakness in smartphone demand still pose a major drag on short-term fundamentals. The core of the disagreement is whether data center revenues can be delivered at the pace expected by management, whether gross margins can stabilize, and the extent to which investors should value growth stories that have not been fully verified.

According to financial reports, Qualcomm's revenue for the quarter was about US$10.44 billion, with adjusted earnings of US$2.17 per share. Overall performance was better than or in line with market expectations, but gross margin was lower than expectations, and mobile phone business revenue was about US$5.14 billion, down 26% year on year. Affected by rising component costs, pressure on gross margins, and concerns about weak smartphone demand.

Goldman Sachs analyst James Schneider maintained Qualcomm's “neutral” rating in a research report, with a 12-month target price of $160. Goldman Sachs anticipates that the company's stock price may drop slightly after the earnings report is released.

The bank believes that the early momentum of Qualcomm's data center business can offset smartphone headwinds to a certain extent, but investors still want to see more evidence on the scale and timing of FY27 data center sales, especially in the context of short-term smartphone weakness; at the same time, investors may also need to see more evidence of stable gross margins before they turn more positive towards stocks.

Goldman Sachs said that the reason for maintaining a “neutral” rating is due to recent headwinds in the smartphone market, which balances low valuations and the growth potential of non-traditional markets such as data centers and automobiles.

The data center is a long-term focus recognized by Goldman Sachs and many investment banks. According to Qualcomm, the number of multi-generational custom chip cooperation projects from global hyperscale cloud vendors has increased from two to three, and has entered the wafer production stage. It is expected to start contributing revenue in the December quarter, then gradually expand in FY27. Management expects data center revenue to exceed 650 million US dollars in the December quarter, total FY27 data center revenue of 5 billion US dollars, and reach an annualized exit operation rate of about 7 billion US dollars by the end of FY27.

However, Goldman Sachs also suggested that the data center business volume is responding to a slight increase in operating profit margins, but short-term gross margin pressure is still the focus of market attention; the bank lowered the company's profit forecast by an average of 8% due to continued weakness in smartphones and falling gross margins. Among them, FY27's earnings forecast per share was lowered from $11.10 to $9.75, and FY28 was lowered from $13.80 to $12.55.

TD Cowen analyst Joshua Buchalter maintained Qualcomm's “buy” rating, but lowered the target price from $200 to $185.

Buchalter pointed out that Qualcomm's performance is at the leading end, but weaker-than-expected gross margin is a major concern. He believes that demand is not the main issue; supply is the key limit for growth; it is expected that most of Qualcomm's FY27 data center sales will come from customized AI chips supplied to two major cloud vendors, including Amazon (AMZN.US), followed by connectivity products.

However, Buchalter also said that investors would like to see Qualcomm win more large-scale orders for commercial connectivity, XPU and CPU products before fully valuing the data center business.

In contrast, Barclays analyst Tom O'Malley gave a more cautious view, maintained Qualcomm's “sell” rating, and lowered the target price from $180 to $150.

O'Malley believes that rising component costs will further suppress the smartphone business. It is expected that global mobile phone sales will remain flat or decline year over year in the 2027 calendar year, and that Qualcomm's FY27 phone revenue will drop 26%. He pointed out that although Qualcomm's data center business has potential for growth, data center volume may drag down the gross profit margin of traditional chips, and customer diversity is limited recently; despite the growth in the automotive and IoT business, the weak mobile phone business will still be an important drag.

Bank of America analyst Vivek Arya also maintained a “sell” rating and lowered the target price from $180 to $170. After the financial report was released, Arya lowered Qualcomm's FY27 and FY28 earnings per share forecasts by 10% and 7%, respectively, to reflect the possible drag on profit growth over the next few years due to pressure on gross margin and continued weakness in the mobile phone business.