Qualcomm's smartphone business is shrinking. The company just told investors anyway that it has a path through. The stock listened.
Shares of the chipmaker rose more than 13% after-hours despite Q3 guidance that came in below expectations. Two pieces of forward-looking commentary were the reason.
Qualcomm reported Q2 EPS of $2.65 on revenue of $10.59 billion. Wall Street had been looking for $2.55 and $10.56 billion. Both lines came in slightly down from the same quarter last year, when EPS was $2.85 and revenue was $10.83 billion.
The QCT business segment, which is the bulk of Qualcomm's revenue, brought in $9.07 billion versus a $9.13 billion estimate. Licensing revenue topped expectations at $1.38 billion versus $1.32 billion.
Qualcomm guided Q3 revenue to a range of $9.2 billion to $10 billion. Analysts had been expecting $10.23 billion.
The pressure point is global smartphone demand. International Data Corporation reported that global smartphone shipments fell 4.1% in Q1 to 289.7 million units, breaking a 10-quarter streak of growth that started in mid-2023. IDC called the Q1 drop "a mild precursor" for what 2026 has in store.
Bernstein analyst Stacy Rasgon said the broader smartphone space could face double-digit unit declines this year.
Two lines turned the report from a guidance miss into a 13% rally.
First, Qualcomm said it sees the Chinese smartphone market bottoming in the current quarter. China is the single biggest swing factor in Qualcomm's handset revenue, and a bottom there is exactly what investors need to hear.
Second, the company said it expects to ship custom silicon to an unnamed hyperscaler later this year. Qualcomm has been working to diversify away from handsets and into data center, automotive, and robotics. Custom silicon for a hyperscaler is the most concrete data center signal the company has given investors yet.
Qualcomm CEO Cristiano Amon delivers the keynote at the Computex conference in Taiwan in June. The talk, titled "AI Together," could give investors a clearer look at the company's data center strategy. The next major data point is that keynote.
