Qualcomm (QCOM.US) Q4 earnings spark a Wall Street "bull-bear standoff": data centers become a growth option, while handsets and gross margins remain near-term pain points

Title context: Qualcomm (QCOM.US) Q4 earnings spark a Wall Street "bull-bear standoff": data centers become a growth option, while handsets and gross margins remain near-term pain points Text: After Qualcomm (QCOM.US) released its latest quarterly earnings, Wall Street investment banks showed clear divergence in their assessments of the chip company's near-term earnings outlook and long-term growth options. Wall Street broadly recognizes the ramp-up prospects of Qualcomm's data center business and views it as a key growth option to hedge against the decline in the handset business; however, rising component costs, pressure on gross margins, and persistently weak smartphone demand remain the main drags on near-term fundamentals. The core of the divergence lies in whether data center revenue can materialize at the pace expected by management, whether gross margins can stabilize, and to what extent investors should assign valuation to a growth story that has not yet been fully validated. The earnings report showed that Qualcomm's quarterly revenue was approximately US$10.44 billion, with adjusted earnings per share of US$2.17. Overall performance was better than or in line with market expectations, but gross margin was below expectations. Handset business revenue was approximately US$5.14 billion, down 26% year over year. This was affected by concerns over rising component costs, gross margin pressure, and weak smartphone demand. Goldman Sachs Group, Inc. analyst James Schneider maintained a "Neutral" rating on Qualcomm in a research note, with a 12-month target price of US$160. Goldman Sachs Group, Inc. expects the company's share price may edge lower after the earnings release. The bank believes that early momentum in Qualcomm's data center business can offset smartphone headwinds to some extent, but investors still want to see more evidence on the scale and timing of the FY27 data center ramp-up, especially against the backdrop of near-term weakness in smartphones; at the same time, investors may also need to see more evidence of gross margin stabilization before turning more positive on the stock. Goldman Sachs Group, Inc. said the reason for maintaining the "Neutral" rating is that near-term headwinds in the smartphone market are balanced against modest valuation and growth options in non-traditional markets such as data centers and automotive. Data centers are a long-term bright spot recognized by Goldman Sachs Group, Inc. and several investment banks. Qualcomm said that multi-generational custom chip cooperation projects with global hyperscale cloud providers have increased from two to three and have entered the wafer production stage. They are expected to begin contributing revenue in the December quarter and then gradually ramp up in FY27. Management expects December-quarter data center revenue to exceed US$650 million, FY27 total data center revenue of US$5 billion, and an annualized exit run rate of approximately US$7 billion by the end of FY27. However, Goldman Sachs Group, Inc. also noted that the data center business ramp-up should slightly enhance operating margins, but in the near term gross margin pressure remains the market's focus; the bank cut its earnings forecasts for the company by an average of 8% due to continued smartphone weakness and declining gross margins, lowering its FY27 EPS forecast from US$11.10 to US$9.75 and its FY28 forecast from US$13.80 to US$12.55. TD Cowen analyst Joshua Buchalter maintained a "Buy" rating on Qualcomm but lowered the target price from US$200 to US$185. Buchalter noted that Qualcomm's results were at the high end of guidance, but weaker-than-expected gross margin was the main concern. He believes demand is not the main issue; supply is the key constraint on growth. He expects most of Qualcomm's FY27 data center sales to come from custom AI chips supplied to two large cloud providers, including Amazon.com, Inc. (AMZN.US), followed by connectivity products. However, Buchalter also said investors want to see Qualcomm win more large orders in commercial connectivity, XPU, and CPU products before giving the data center business full valuation. In contrast, Barclays analyst Tom O'Malley offered a more cautious view, maintaining a "Sell" rating on Qualcomm and lowering the target price from US$180 to US$150. O'Malley believes rising component costs will further pressure the handset business. He expects global handset sales to be flat or decline year over year in calendar 2027 and forecasts that Qualcomm's FY27 handset revenue will decline 26%. He noted that Qualcomm's data center business has growth potential, but the data center ramp-up may weigh on gross margins for traditional chips, and near-term customer diversity is limited; despite growth in automotive and IoT businesses, weakness in the handset business will remain an important drag. Bank of America Corp analyst Vivek Arya also maintained a "Sell" rating and lowered the target price from US$180 to US$170. After the earnings release, Arya cut Qualcomm's FY27 and FY28 adjusted earnings per share forecasts by 10% and 7%, respectively, to reflect gross margin pressure and the drag that continued weakness in the handset business may place on earnings growth in the coming years.