Qualcomm's Q2 FY2026: Revenue and EPS Beat, but Guidance Signals Caution

Qualcomm reported revenue of $10.6 billion and non-GAAP EPS of $2.65 for Q2 FY2026, beating the street estimates of $10.59 billion and $2.56, respectively. The revenue surprise was +0.1%, and the EPS surprise was +3.5%. While these figures represent a slight beat, they are a step back from the company's recent performance. Revenue was down 13.5% sequentially and 3.5% year-over-year, reflecting the challenges in the handset market.

Cristiano Amon, CEO, noted that "QCT revenues were $9.1 billion, with another quarter of record automotive revenues as well as growth in IoT." Specifically, QCT handset revenues were $6 billion, in line with expectations, but impacted by cautious OEMs due to challenging memory industry dynamics. QCT IoT revenues of $1.7 billion grew 9% year-over-year, driven by consumer and industrial products. QCT Automotive revenues of $1.3 billion grew 38% year-over-year, driven by accelerating demand and increasing content per vehicle.

The gross margin for the quarter was 53.8%, down from 54.6% in the previous quarter and 55.0% in the same quarter last year. This decline is primarily due to the mix shift towards lower-margin segments like IoT and Automotive. Akash Palkhiwala, CFO, stated, "QCT revenues of $9.1 billion and EBT margin of 27% were in line with our expectations." The EBT margin for QTL was 72%, driven by a favorable mix and flat global handset units.

For Q3 FY2026, Qualcomm is forecasting revenues of $9.2 billion to $10 billion and non-GAAP EPS of $2.10 to $2.30. This guidance reflects a more cautious outlook, particularly in the handset market. Akash Palkhiwala explained, "We are forecasting QCT handset revenues to be approximately $4.9 billion as a result of the impact of the industry-wide memory dynamics I just outlined." The company expects QCT Automotive revenues to grow by approximately 50% year-over-year, driven by continued demand and new product launches.

In QTL, the company expects revenues of $1.15 billion to $1.35 billion and EBT margins of 67% to 71%, with a sequential decline primarily due to weaker low-tier handset units. Akash Palkhiwala noted, "QTL revenues of $1.4 billion and EBT margin of 72% came in at the high end of our guidance, driven by favorable mix with global handset units approximately flat on a year-over-year basis."

Qualcomm's automotive and IoT segments continue to be key growth drivers. The company exceeded $5 billion in annualized automotive revenues for the first time and expects to exit fiscal 2026 at a run rate above $6 billion. Cristiano Amon highlighted, "By the end of the fiscal year, we will begin commercial shipments of our fifth-generation Snapdragon digital chassis platform," which represents the largest generation-to-generation content increase in Qualcomm's history.

The Snapdragon X2 platform delivers significant performance improvements, including 3x higher CPU throughput, a threefold increase in GPU capability, and 12x higher NPU performance. Cristiano Amon emphasized, "This represents the largest generation-to-generation content increase in Qualcomm's history, delivering 3x higher CPU throughput, a threefold increase in GPU capability and 12x higher NPU performance while supporting in-vehicle agents and processing for Level 3 and Level 4 autonomous driving."

In the IoT segment, revenues grew 9% year-over-year, driven by growth across consumer and industrial products. Akash Palkhiwala noted, "QCT IoT revenues of $1.7 billion were up 9% on a year-over-year basis, driven by growth across consumer and industrial products." This growth underscores the continued diversification of Qualcomm's business, consistent with its long-term revenue targets.

Qualcomm returned $3.7 billion to stockholders during the quarter, including $2.8 billion in share repurchases and $945 million in dividends. Additionally, the company released a previously recorded tax valuation allowance, resulting in a $5.7 million noncash GAAP tax benefit in the second fiscal quarter.

The tone of the earnings call was more cautious compared to the previous quarter, with a sentiment score of 0.18, down from 0.30 in Q1 FY2026. However, the guidance tone improved to 0.39 from 0.26, and the tone confidence increased to 0.51 from 0.43. Cristiano Amon and Akash Palkhiwala maintained a balanced tone, acknowledging the challenges in the handset market while highlighting the growth in automotive and IoT.

Full call-over-call delivery metrics are in the tone history.

The uncertainty index decreased by 17.2 points, and the QA evasiveness index decreased by 16.9 points, indicating a more straightforward and less uncertain call. Akash Palkhiwala addressed questions about Apple product revenue for fiscal 2027, stating, "In terms of Apple product revenue for fiscal '27, we've seen sell-side models in the range of a little over $2 billion in terms of QCT product revenue in the year, and we think that's a reasonable place to model the business."

Qualcomm's supply chain involves several key partners, including Keysight, GlobalFoundries, TSMC, UMC, Arm Holdings, Synopsys, and ASE Group. The company's focus on automotive and IoT growth is likely to benefit these suppliers, particularly in the areas of test and measurement, RF transceivers, and advanced SoC fabrication.

The continued growth in automotive and IoT segments will likely drive demand for test and measurement equipment from Keysight and advanced SoC fabrication from TSMC and GlobalFoundries. The transition to new digital cockpit and ADAS launches will also benefit UMC and Arm Holdings in the connectivity and IP markets.

In the broader fabless semiconductor space, Qualcomm's performance stands out in certain areas but lags in others. For example, NVIDIA reported a revenue of $81.61 billion with a gross margin of 74.9% and a revenue growth of 85.2% year-over-year, significantly outpacing Qualcomm's performance. However, Qualcomm's focus on automotive and IoT is a unique differentiator, and the company's guidance for continued growth in these segments is positive.

Compared to peers like Apple and Google, Qualcomm's revenue and gross margin are lower, but the company's diversification into automotive and IoT is a strategic advantage. Akash Palkhiwala noted, "On a combined basis, QCT automotive and IoT revenues grew 20% year-over-year, underscoring the continued diversification of our business, consistent with our long-term revenue targets."

Qualcomm's Q2 FY2026 results show a slight beat in revenue and EPS, but the guidance for the next quarter indicates a more cautious outlook, particularly in the handset market. The company's automotive and IoT segments continue to be key growth drivers, and the focus on these areas is likely to benefit its supply chain partners. While the overall tone of the earnings call was more cautious, the guidance tone and tone confidence improved, reflecting a balanced approach to the challenges and opportunities ahead.