It's been a challenging start to 2026 for Qualcomm (QCOM 0.74%). The memory shortage is impacting the company's smartphone component sales, which is its core business. Its partnership with Apple could also end this year, as the tech giant is developing its own custom-designed modem chips to avoid relying on Qualcomm.
Due to the negative news, Qualcomm's stock is down 25% year to date as of March 23. But it recently announced authorization of a $20 billion share buyback -- a sizable sum considering its market cap of $140 billion -- and raised its quarterly dividend from $0.89 to $0.92. Qualcomm was already one of the top dividend stocks in the tech sector, and it will now be paying out even more.
Buybacks and dividend hikes can either be a sign of management's confidence or an attempt to stop the bleeding. Let's see if this looks more like the former or the latter.
Image source: The Motley Fool.
Qualcomm is still in a good financial position
This setup isn't a company stretching itself financially to buy back shares or pay a hefty dividend, as Qualcomm can afford both. It has a solid balance sheet, with $7.2 billion in cash and cash equivalents at the end of last year. Long-term debt is manageable at $14.8 billion, and Qualcomm has generated $12.9 billion in trailing free cash flow.
Qualcomm also showed promising developments in the first quarter of its 2026 fiscal year, which ended Dec. 28, 2025. It delivered record revenue of $12.3 billion, but what was most important was where that revenue came from. Automotive revenue jumped 15% year over year to $1.1 billion, and Internet of Things (IoT) revenue increased 9% to $1.7 billion. Smartphones remain the biggest revenue stream, but the automotive and IoT numbers show that Qualcomm is having some success diversifying its business.
The verdict: Moderately bullish, with a few caveats
Qualcomm looks cheap right now, especially compared to tech stocks in general, as it's trading at 12 times forward earnings. Considering that low multiple and the company's strong cash flow, this buyback looks like a way to scoop up shares while prices are low and return value to investors.
NASDAQ: QCOM
Key Data Points
The glass-half-empty outlook would be that the memory shortage is a serious issue, Apple is planning to move on from its Qualcomm partnership, and the buyback is simply because management doesn't see anything better to do with the money. Revenue guidance for next quarter also failed to impress at $10.2 billion to $11.0 billion.
While those are all issues, my main concern with Qualcomm is its lackluster long-term track record. Since CEO Cristiano Amon took over in 2021, Qualcomm has delivered a total return of 11% to shareholders. The S&P 500 returned 79% over the same time period. Going back 10 years, Qualcomm has returned 229% compared to 276% for the S&P 500.
The buyback is a sign that Qualcomm may be undervalued at the moment. However, I'd personally hold off on investing for now, at least until seeing more progress in automotive and IoT revenue.
