Success due to AI, failure also due to AI? Qualcomm deeply mired in memory supply bottleneck, analysts warn growth may nearly stagnate in the next two years.

Qualcomm is facing a fierce siege in the consumer electronics market, even as memory demand explodes due to AI data center construction.

Although Qualcomm’s stock has recently achieved its longest streak of consecutive gains since 2018, it is merely a respite amid a disastrous downward trend. The stock is down over 20% year-to-date, making it the worst performer in the Philadelphia Semiconductor Index. Last quarter’s 25% plunge also marked its worst quarterly performance since 2002.

Analysts expect: Revenue for fiscal year 2026 is forecasted to see its first decline since 2023, with only about 0.8% growth expected in 2027, far from the broader semiconductor industry’s expectations of 56% and 28% growth for the same periods.

The surge in memory prices is the central issue. Since the end of August last year, the DRAM spot price index has risen close to 500%, forcing Qualcomm’s clients to cut inventory as they cannot secure enough memory chips at reasonable prices.

Meanwhile, Apple is gradually discontinuing the use of Qualcomm modem chips, adding insult to injury, with the stock down about 40% from its record high in June 2024.

Despite the recent streak of gains, still down 20% year-to-date

Qualcomm stock is on track to rise for the tenth consecutive trading day, and this 11% rally is its best performance in the past six months. The semiconductor sector is also the second-best performing industry in this year’s S&P 500.

However, Qualcomm is still down about 20% this year, making it the worst performing constituent in the Philadelphia Semiconductor Index. The stock earlier this month touched its lowest level since 2023, and it has suffered at least eight analyst downgrades this year.

Of the 45 analysts covering Qualcomm, only 17 maintain a buy rating, and 3 rate it as a sell—this is the most pessimistic consensus since at least 2008. By contrast, analysts’ buy ratings for AI-focused chipmakers such as Nvidia, Broadcom, and Micron exceed 90%.

Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, says:

"It was a momentum stock for a long time, and losing that aura is very painful because you have to rethink what kind of investors are attracted by the company’s fundamentals. It’s a long and ugly process."

AI data centers vie for memory resources, hitting consumer electronics first

The root cause of Qualcomm’s current predicament is directly linked to the AI boom.

The large-scale construction of AI data centers has sharply driven up demand for memory chips, creating a dual pressure of limited supply and high prices for consumer electronics manufacturers.

The DRAM spot price index has surged nearly 500% since the end of August last year. Though it has slid about 13% from its peak in January this year, persistently high prices continue to cast a gloomy outlook on Qualcomm’s growth prospects according to analysts.

In its last quarterly report, Qualcomm disclosed that some customers will cut shipment plans because of high memory chip prices.

Ethan Feller, Stock Strategist at Zacks Investment Research, points out:

"Memory shortages are a real challenge right now, and with so much uncertainty about memory’s future, no one can say the worst is over. If memory supply and demand could be clarified, this stock might be quite attractive, but the growth outlook for this year and next is bleak, clearly weighing on market sentiment."

Diversification strategy struggles to offset core business gap

Facing pressure on its core business, Qualcomm CEO Cristiano Amon previously stated the company is accelerating its transformation, expanding chip sales into areas such as automotive, PCs, and data centers to build more diversified revenue streams.

However, growth in new business still falls short of filling the gap in the smartphone market.

According to Bloomberg Industry Research, analysts expect Qualcomm’s revenue for fiscal year 2026 (ending this September) to decline by 0.8%, which would be the first annual contraction since 2023; for fiscal year 2027, revenue growth is expected to be about 0.8%.

Meanwhile, Apple’s plan to gradually phase out Qualcomm modem chips continues to dampen expectations for its long-term outlook.

A few years ago, the market hoped AI would spread beyond data centers, positioning Qualcomm as a key beneficiary and sending its stock to a historic high in June 2024, but that expectation has yet to materialize.

Institutions collectively lower ratings, valuation advantage yet to be recognized

Wall Street’s attitude toward Qualcomm has become cautious. JPMorgan downgraded Qualcomm last week; BNP Paribas also issued a downgrade report and wrote: "Memory price squeeze is likely to continue into the first half of next year, and we see little prospect of improvement for Qualcomm in the short to medium term."

The main argument supporting Qualcomm bulls is its relatively low valuation. The stock currently has a price-earnings ratio of about 12, lower than its ten-year average of about 15, while the Philadelphia Semiconductor Index overall trades at about 22 times earnings.

A few value hunters remain optimistic. Steve Bruce, Chief Investment Officer at Bruce Wood Capital, says:

"The market has given Qualcomm substantial headwinds, but it still executes well under tough conditions. These issues are now widely known and should be priced in. If memory prices fall further, it will give the company more breathing room, and in the long run, this stock is attractive."

However, until the supply situation for memory becomes clearer, this assertion is unlikely to win wide recognition from the market.

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