Smartphone chip giant Qualcomm (QCOM 2.19%) reported solid results for the first quarter of fiscal 2026, with revenue rising by 5% year over year and beating expectations. The company's outlook was another story. Qualcomm expects second-quarter revenue to decline, news that sent the stock spiraling lower on Thursday morning.
The issue for Qualcomm is a severe and worsening shortage of memory chips. "In the coming quarters, the handset industry will be constrained by the availability and pricing of memory, particularly DRAM," said Qualcomm CEO Cristiano Amon. IDC expects smartphone unit shipments to decline by 1% in 2026 as average selling prices soar.
The memory situation is bad news for Qualcomm's core business, but there is a silver lining that investors shouldn't ignore.
Image source: Getty Images.
What's going on in the memory chip market?
Tech giants are building AI data centers at a rapid pace, with trillions of dollars likely to be spent on AI infrastructure by 2030. AI servers require standard DRAM and NAND chips, and AI accelerators often use high-bandwidth memory (HBM) chips to unlock additional performance.
A combination of booming demand for all types of memory chips and memory chip manufacturers shifting manufacturing capacity to HBM has created a severe shortage of DRAM chips bound for PCs, smartphones, and other end markets. Building new memory chip manufacturing capacity is a slow process, so this situation is unlikely to improve any time soon.
Amon disclosed during Qualcomm's earnings call that the memory shortage has led smartphone OEMs, particularly those in China, to take a cautious approach and reduce chipset inventories. This translates into lower sales for Qualcomm, which supplies SoCs to smartphone OEMs.
While other markets, like PCs, will also suffer from the memory shortage, Amon expects the smartphone market to be hit the hardest. "We just wish there was more memory. And the handsets get hit the most given its scale and its cycle time. So we expect the impact is going to be more muted in other business," Amon said.
A silver lining for Qualcomm
While overall smartphone shipments are likely to decline this year as OEMs scramble to secure memory chips, the premium segment appears more resilient. "...I think the best proxy is what happened during the pandemic. The premium and high tier has proven to be more resilient to price increases," noted Amon in the earnings call. Amon added, however, that memory availability remained an issue, though he expected OEMs to prioritize premium smartphones.
Despite an expected decline in smartphone shipments this year, IDC expects the total value of those smartphone shipments to reach a record high of $579 billion. For Qualcomm, a mix shift toward higher-end chips could help offset some of the downsides of the memory shortage. The company expects its chips to power 75% of Samsung's upcoming family of premium devices, which may still sell well despite potentially higher prices.
NASDAQ: QCOM
Key Data Points
Is it time to buy Qualcomm stock?
2026 is unlikely to be a strong year for Qualcomm's core business, even as the smartphone market shifts toward premium devices. Meaningful additional memory chip manufacturing capacity isn't coming online anytime soon, and spending on AI infrastructure appears to be accelerating.
Qualcomm stock could be under pressure for a while, but once the memory market stabilizes, the smartphone market should bounce back. This is a temporary issue for Qualcomm, although when it is resolved is anyone's guess.
Based on the average analyst estimate, Qualcomm stock trades at roughly 12 times forward earnings. Those estimates may come down this year if the memory shortage gets worse. However, at that valuation, Qualcomm stock looks attractive for long-term investors able to wait out the memory crunch.
