Qualcomm and Arm Stocks Tumble Despite Earnings Beats as Memory Costs Surge

Woofun AI reports that on July 29, following the close of U.S. stock markets, both Qualcomm and Arm released their quarterly earnings, triggering a paradoxical market reaction where beating financial expectations failed to sustain share prices. The core event anchor is not the revenue growth itself, but the immediate sell-off driven by structural cost pressures and guidance revisions that exposed the fragility of current hardware valuations. This divergence between reported profitability and market sentiment signals a critical inflection point for semiconductor firms reliant on mobile ecosystems.

Qualcomm’s financial results presented a complex picture of top-line strength masking bottom-line weakness and future uncertainty. Revenue reached $9.947 billion, surpassing the consensus estimate of $9.67 billion, yet non-GAAP earnings per share landed at $2.21, missing the expected $2.23. More critically, the company’s forward guidance for the next quarter projected revenue between $9.7 billion and $10.5 billion, with earnings per share ranging from $2.05 to $2.25. This upper limit of $2.25 fell significantly short of the market consensus of $2.36, indicating that while current operations exceeded expectations, the trajectory for profitability is deteriorating. The market interpreted this not as a success, but as a warning that revenue gains are being eroded by margin compression.

Arm’s performance followed a similar pattern of initial optimism followed by sharp correction. The company reported revenue of $1.289 billion and adjusted earnings per share of $0.45, both exceeding analyst expectations, with next-quarter guidance also beating forecasts. Despite these positive metrics, Arm’s stock price dropped 8.11% during regular trading hours before the report was even released. After the earnings release, the stock remained flat, but following the conference call, it plummeted another 7% to 8% in after-hours trading. Bloomberg initially headlined the event as "Even exceeding expectations didn't impress investors," before revising the narrative to "Slowdown in smartphones overshadows data center growth, Arm drops," reflecting the market’s prioritization of demand-side risks over accounting beats.

The primary catalyst for this negative sentiment was identified in both earnings reports: the escalating cost of memory components. Qualcomm’s official financial presentation highlighted that rising memory prices and supply constraints are expected to cause a 20% year-over-year decline in QCT’s Android smartphone revenue for FY 2026. This drag is projected to reduce full-year earnings per share by more than $1.50. To mitigate these input costs, Qualcomm announced a price increase on products effective September 1. The contrast in impact is stark: while Samsung benefited from higher memory prices to achieve an operating profit of 89.49 trillion Korean won, Qualcomm faces a direct hit of $1.50 per share, illustrating how the same market dynamic creates winners and losers within the supply chain.

Qualcomm’s gross margin data further underscores the severity of this cost squeeze. The GAAP gross margin for the quarter stood at 53.1%, down from 55.6% in the same period last year. Management described the QCT gross margin as "slightly below our historical range" due to rising memory and input costs. This margin erosion coincides with a significant shift in business mix: mobile business revenue fell 20% year-over-year to $5.086 billion, while automotive revenue surged 61% to $1.588 billion, marking 23 consecutive quarters of double-digit growth. The gap between these segments is narrowing rapidly, with automotive quarterly revenue approaching one-third of the mobile division for the first time, signaling a structural pivot away from traditional handset dependency.

Woofun AI data shows that a longer-term challenge lies in Qualcomm’s relationship with Apple, which is accelerating its decline. Official materials indicated that due to supply constraints, Apple product revenue will drop sharply starting in the fourth quarter, with modem share on upcoming iPhones expected to fall significantly below the previous estimate of 20%. Chief Financial Officer Akash Palkhiwala stated that Apple’s revenue will drop by about 50% from the September quarter to the December quarter. In response, CEO Cristiano Amon stated, "We are essentially replacing Apple with cloud." The company’s official stance is more cautious, noting that non-phone revenue growth in the 2027 fiscal year will replace all Apple product revenue from the 2026 fiscal year, marking a strategic realignment toward enterprise and cloud infrastructure.

The cloud segment represents a long-term timeline for Qualcomm, with revenue targets set at around $300 million in the 2026 fiscal year, $5 billion in the 2027 fiscal year, and over $15 billion in the 2029 fiscal year. Within the $5 billion target for 2027, two mega-customers with custom chips are expected to contribute over $1 billion each. One such partnership has been disclosed: Meta and Qualcomm signed a strategic agreement for a multi-generation CPU roadmap, with the first Dragonfly C1000 chip expected to start production in the second half of 2028.

However, Seaport Global analyst Jay Goldberg noted that Qualcomm "is seeing Android share shift away from itself and has already lost almost all remaining share on the Apple side," casting doubt on the speed at which cloud revenues can offset mobile declines.

Arm’s shareholder letter highlighted impressive growth in its data center segment, where royalty revenue more than doubled year over year for the second consecutive quarter. The Neoverse architecture has shipped over 1.5 billion cores, with the most recent 500 million cores taking only 9 months to ship, compared to 6 years for the first 1 billion cores. Citing IDC data, Arm noted that spending on Arm-based accelerated server platforms has nearly doubled in the past two quarters, surpassing x86 platform spending.

Despite this momentum, the dark line on the graph tells a different story: quarterly royalty revenue was $715 million, a 22% year-over-year increase, but it failed to surpass the $737 million peak recorded in the third quarter of the 2026 fiscal year. Licensing fees remain volatile, with year-over-year growth fluctuating between -15% and +72%, but the market expects a smoother upward trend in royalties, which was not achieved this quarter.

Valuation risks and regulatory scrutiny further compounded Arm’s stock decline. During the earnings call, Arm revised its full-year royalty growth guidance from around 20% to the high teens, citing a weak smartphone market and high memory prices, and anticipated a double-digit decline in smartphone market demand. For the next quarter, licensing revenue is expected to grow by around 30% year-on-year, while royalties are projected to grow by only the low teens. As of July 29, Arm’s forward P/E ratio stood at 103.66 times, compared to Qualcomm’s 15.22 times, a difference of 6.8 times. Arm’s valuation is also 5.4 times higher than Nvidia’s forward P/E of 19.07 times, despite Nvidia’s trailing twelve-month revenue of $253.49 billion being 49 times larger than Arm’s. Analysis noted that at a forward P/E of 100 to 120 times, "a clean beat is no longer sufficient to drive the stock price up," as valuations have priced in years of future growth.

Additionally, the U.S. Federal Trade Commission launched a formal antitrust probe against Arm in May 2026, investigating potential anti-competitive behavior regarding its in-house AGI CPU. Parallel investigations are underway in South Korea and by the European Commission. If regulators enforce nondiscriminatory pricing, Arm’s long-term model, which projects $250 billion in revenue for the 2031 fiscal year, would require a reassessment of profit margin assumptions.

The broader sector context reflects a rotation away from high-multiple semiconductor stocks. The Philadelphia Semiconductor Index fell 18.2% in July, after doubling in the first half of the year. In July, 19 technology stocks dropped by over 25%, mostly semiconductors, including 7 that still have triple-digit gains year-to-date. The biggest decliners were those with the largest prior surges: SanDisk fell 40.4% in July but is up 471% year-to-date; Micron dropped 26.5% but has risen 197% this year; Arm declined 36.6% after a 105.7% YTD increase. Qualcomm was an exception, falling 15.75% in July and down 8.99% YTD, as it lacks a squeezable AI premium.

Thirty-six analysts rate Qualcomm as a Hold with an average target price of $220.57, representing a 40% upside, while 40 analysts rate Arm as a Buy. In contrast, Microsoft reported $90 billion in revenue with Azure growing 43%, surging 8% post-market, while Meta’s $60.8 billion revenue and 28% growth were overshadowed by net income declines, causing an 8% to 10% drop. Samsung achieved record operating profit, stabilizing its stock. The increase in memory prices allowed Samsung to earn what NVIDIA makes in a quarter, while Qualcomm and Arm faced distinct challenges, marking a clear divergence in the semiconductor landscape.