Among the longtime stalwarts in the semiconductor industry that lead the way in artificial intelligence (AI), not many have struggled more than Qualcomm (QCOM -0.01%). 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.
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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.
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.
