Qualcomm's China Exposure A Key Risk Despite Xiaomi Partnership: Analyst

Qualcomm (NASDAQ:QCOM) posted a solid fiscal third-quarter performance on Wednesday, boosted by continued growth in its automotive and IoT businesses.

However, a cautious fourth-quarter outlook and lingering concerns over handset market volatility tempered investor enthusiasm, sending shares down more than 7% in Thursday trading.

Analysts across Wall Street responded with cautious optimism. Rosenblatt Securities’ Kevin Cassidy, who maintained a Buy rating and a $225 price forecast, described the quarter as a “solid beat”.

Also Read: Why Qualcomm’s Stock Isn’t Soaring Like Its Rivals

While fourth-quarter projections may not inspire near-term excitement, Cassidy underscored Qualcomm’s strength in edge AI, backed by its multi-generation NPU roadmap. He trimmed his fourth-quarter forecast slightly to $10.65 billion in revenue and $2.85 EPS, and now expects fiscal 2025 revenue of $43.52 billion and EPS of $11.88.

Bank of America Securities analyst Tal Liani also reiterated a Buy with a $200 forecast, emphasizing Qualcomm’s progress in diversifying beyond smartphones.

While handset revenue was marginally below expectations due to mix and timing issues, automotive and IoT gains, up 21.3% and 23.7% respectively, provided an effective offset.

Liani sees handset revenue rebounding in the next quarter, with forward guidance implying aggregate third-quarter and fourth-quarter performance should beat Street expectations. He also pointed to a stronger-than-expected operating margin that contributed to a 5-cent EPS beat.

Liani noted that non-handset revenue now comprises 30% of QCT sales, up from 25% three years ago, and is projected to grow 16% in 2025 and 20% in 2026.

He highlighted strong design momentum in automotive, with 12 digital chassis wins and 50 new vehicle launches this year. IoT, meanwhile, is being propelled by AI PCs and smart glasses adoption.

However, Liani flagged China as a key risk, with the region accounting for 68% of QCT handset revenue. Qualcomm’s expanded relationship with Xiaomi (OTC:XIACF) and leadership in the mid-to-high-end segment provide some insulation, but rising domestic competition, particularly from MediaTek, remains a threat.

He also pointed to Qualcomm’s longer-term ambitions in the data center space as a potential future catalyst. The company, which recently acquired Alphawave, is leveraging its CPU and NPU assets and has entered advanced talks with a major hyperscaler. Though material revenue from this push isn’t expected until 2028, Liani views it as a promising growth avenue.

J.P. Morgan’s Samik Chatterjee echoed these sentiments, reiterating an Overweight rating and a $200 price forecast. He noted that the strength in IoT and automotive helped counteract weaker handset performance.

With the fourth quarter guidance pointing to a handset recovery, Chatterjee anticipates combined third and fourth-quarter revenue to exceed prior forecasts.

Looking ahead, he forecasts continued momentum in Auto and IoT, projecting 35% and 20% growth respectively in fiscal 2025, with handset sales expected to rise 10%.

While Qualcomm faces a revenue headwind from the expected loss of Apple (NASDAQ:AAPL) business, Chatterjee highlighted management’s confidence in non-Apple revenues.

He anticipates overall revenue growth will slow to single digits in fiscal 2026 and 2027, but expects non-Apple handset revenue, Auto, and IoT segments to drive a return to double-digit growth beyond that period.

While Qualcomm’s strong quarterly execution reinforces its diversification strategy and long-term AI positioning, near-term caution around the handset cycle and China exposure continues to cloud the outlook for some investors.

Price Action: QCOM stock is trading lower by 7.61% to $147.04 at last check Thursday.

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