Qualcomm (QCOM) faces the impending loss of Apple as a client post-March 2027 and substantial revenue dependence on China, yet the company is poised for potential upside. This is driven by an anticipated smartphone upgrade cycle impacting both iPhone and Android users, alongside robust diversification into its IoT and automotive segments, which saw 29% and 44% revenue growth respectively in the first nine months of 2025. With Qualcomm maintaining its leading smartphone chipset position and trading at a P/E of 16—half the S&P 500 average—the article suggests these catalysts, coupled with potentially easing investor concerns over China exposure, could lead to improved shareholder returns.
Among the longtime stalwarts in the semiconductor industry that lead the way in artificial intelligence (AI), not many have struggled more than Qualcomm (QCOM 0.17%). Qualcomm remains the leading innovator in the smartphone chipset market, and it has incorporated AI features into its latest phones. Despite its position in the market, the stock struggled to move higher as it contends with the coming loss of Apple as a client and its heavy dependence on China. Nonetheless, Qualcomm's supply agreement with Apple is valid until March 2027, which means it could still drive sales in the immediate future. Additionally, it maintains a strong presence in the most advanced phones running Alphabet's software. As indications of another upgrade cycle begin to appear, Qualcomm's long-suffering shareholders could finally experience an improvement in shareholder returns. The coming upgrade cycle Admittedly, identifying Apple as a potential catalyst for Qualcomm stock may seem nonsensical at first glance. Qualcomm's agreement with Apple ends in 17 months, giving users a limited amount of time to upgrade to a Qualcomm-powered iPhone. Moreover, the built-in AI features introduced with the iPhone 16 failed to drive the sales increases typically seen in past upgrade cycles. However, it is likely too early to write off iPhone-driven sales as a revenue source. Phones older than the iPhone 11 will be unable to load iOS 26, a factor that will likely push iPhone users to finally upgrade in the near term, and a similar situation is likely to arise next year. Furthermore, investors should remember that Android holds a 75% global market share, according to StatCounter. That should bolster Qualcomm even as Apple transitions away from its products. The Android side of the business is also different since numerous manufacturers, including Samsung, Sony, and Motorola, use its chipsets. These phones typically do not last as long, and until the release of the S24 in January 2024, Samsung phones only guaranteed four years of Android updates. Now, with the S24 and later models receiving seven years of updates, the longer-lasting phone could push more users to upgrade in the near term. Qualcomm's new focus While smartphone chipsets made up 63% of Qualcomm's total revenue in the first nine months of 2025 (ended June 29), Qualcomm intends to compensate for the lost Apple revenue through other business segments. These businesses, particularly its Internet of Things (IoT) and automotive segments, produce other devices that can drive Qualcomm's growth. Handset revenue grew 11% yearly in the first nine months of the year, but that did not compare to the other segments. IoT and automotive revenue increased by 29% and 44%, respectively, and with that growth, these businesses could help revive Qualcomm stock as they become a larger part of the company. NASDAQ: QCOM Key Data Points Addressing the limitations Indeed, even with such improvements, around 46% of the company's revenue came from China in fiscal 2024. While we will likely get an update on this figure after the fiscal fourth-quarter earnings release, it may seem uncomfortably high. Nonetheless, investor interest has increased in China-based companies like Alibaba and Baidu. That indicates that investors now see China exposure as less of a liability. Investors may also not know what to make of Qualcomm's valuation. The price-to-earnings (P/E) ratio of 16 is about half of the S&P 500 average of 31, but the fact that the earnings multiple is near a 52-week high is indicative of an improved outlook. Additionally, that P/E ratio could rise much further as Qualcomm's business conditions improve, taking its stock higher over time. Consider Qualcomm stock Amid business challenges and a low valuation, an upgrade cycle and the diversification of its offerings could finally push investors to stop underrating Qualcomm stock. Indeed, the loss of Apple as a client and high dependence on China have boded poorly for Qualcomm on the surface and likely explain its 16 P/E ratio. Still, neither of those factors changes the fact that Qualcomm remains the No. 1 smartphone chipset producer. Moreover, its diversification into IoT and automotive gives it more avenues where it can apply its technology. With investors appearing to be less worried about China exposure and an upgrade cycle likely to increase sales, the chip stock is unlikely to stay as cheap as 16 times earnings for long. Qualcomm (QCOM) presents a complex investment case, with its current low valuation reflecting significant market concerns. The company's stock is weighed down by two primary headwinds: the impending loss of Apple as a major client after their supply agreement expires in March 2027, and a substantial revenue dependence on China, which accounted for approximately 46% of revenue in fiscal 2024. Despite these risks, several catalysts could drive a re-rating. A potential smartphone upgrade cycle is looming, driven not by new features but by software obsolescence, as devices older than the iPhone 11 will be unable to run iOS 26, forcing upgrades. A similar dynamic exists in the Android market, where Qualcomm holds a dominant 75% global share. Critically, Qualcomm is successfully diversifying its revenue streams. While handset revenue grew 11% in the first nine months of 2025, this was significantly outpaced by its Internet of Things (IoT) and automotive segments, which expanded by 29% and 44% year-over-year, respectively. This rapid growth in adjacent markets provides a tangible path to offset the future decline in Apple-related revenue. The stock's price-to-earnings ratio of 16, roughly half the S&P 500 average, suggests these risks are priced in, yet the multiple's position near a 52-week high indicates an improving investor outlook, potentially supported by easing concerns over China exposure.
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