Qualcomm FQ1 26 & Google Q4 25– All In!

Qualcomm FQ1 26 – A situation that both Qualcomm and MediaTek would like to forget.

• Another excellent quarter has been spoiled by the AI boom as memory shortages have spilled over into the handset market leading both Qualcomm and MediaTek to guide lower for calendar Q1 26.
• Outside of this hiccup, everything is on track with Qualcomm’s diversification strategy, and the 2029 targets still look easily beatable in my opinion.
• This means that the shares just went on sale and are now 10% more attractive than they were yesterday, meaning that I will be taking this opportunity to have a few more.
• FQ1 26 revenues / Adj-EPS were $12.3bn / $3.50 just ahead of consensus of $12.1bn / $3.39 but the real story of these results is in the guidance for the coming three months.
• FQ2 revenues / Adj-EPS are expected to be $10.2bn – $11.0bn ($10.6bn) / $2.45 – $2.65 ($2.55), which is 4% and 11% below the consensus estimate, respectively.
• The problem is relatively straight forward and has affected both Qualcomm and MediaTek fairly equally.
• Smartphones require larger amounts of memory as users begin to run AI on their devices, precisely at the time when the capacity to make memory chips is in very short supply.
• To make the situation worse, memory makers can switch DRAM capacity to make HBM memory for data centres, for which they can charge higher prices and earn higher margins.
• Pretty much all of the memory makers have done this, which has exacerbated the already tight supply of DRAM for devices.
• The net result is that DRAM supply to smartphone makers has become extremely tight, leading to a spike in prices as well as lower availability.
• Memory makers have also not been forthcoming in telling their handset customers when the supply situation will ease which has led to a period of uncertainty.
• The net result is that handset prices are going to increase which will cause volumes in the mass market and lower tiers to drop.
• At the same time, handset makers look like they will be running with less inventory to reduce risks from the increased market uncertainty which combined with end market weakness has a dual impact on the suppliers to the industry.
• This is the only reason I can see why Qualcomm and MediaTek have both guided to a weaker-than-expected calendar Q1 26 as outside of this issue, things continue to go well.
• Qualcomm’s automotive business grew by 15% YoY, while IoT is finally showing signs of life, growing by 9% YoY.
• Unfortunately, these are not yet big enough to offset the impact from the smartphone market, but I am sure their time will come.
• The net result is that estimates for this fiscal year are likely to be cut by around 10% meaning that EPS for FY 2026 will be something like $10.76 which is a decline from $12.03 reported for FY 2025.
• This is all the fickle market cares about which sent the shares down 10% in after-hours trading.
• Outside of FY 2026, there is no reason to doubt that the long-term diversification is on track and that growth will resume once the shortage passes.
• This means that on conservative estimates, Qualcomm is trading on 12.8x 2026, 11.0x 2027 and 10.5x 2028 PER, meaning that we are right back where we started.
• The long term outlook is now clearer than it was the last time the shares traded here, and a multibillion-dollar possibility in the data centre has also arrived on the horizon.
• Consequently, the shares have never been more attractive so I will be topping up my position in today’s session.

Google Q4 25 – All its chips on AI

• Alphabet reported another set of excellent results the proceeds of which will almost be all invested in AI with its capex bill for 2026 almost doubling to an unbelievable $175bn – $185bn.
• The big winners in the short term are Google’s suppliers, of whom Broadcom, Nvidia and I suspect MediaTek may see even stronger demand for their products and services.
• Q4 25 revenues / EPS were $113.8bn / $2.82, nicely ahead of expectations of $111.3bn / $2.63.
• There are still no signs of generative AI impacting search revenues even though users are clearly clicking on blue links less now that AI Overview often answers the query.
• The trade-off is that the more complex enquiries improve Google’s understanding of the user and therefore the accuracy with which advertising can be targeted.
• This allows advertising prices to rise which is something that one also was able to observe in Meta’s numbers but how long this will continue is uncertain.
• However, Google is betting everything on AI as it expects to spend $180bn on data centre capacity, most of which will be using its own silicon, but also a good proportion will go to Nvidia.
• This is where Google has a colossal advantage over OpenAI with whom it is locked in a fight for supremacy in the AI Ecosystem which OpenAI cannot afford to lose.
• Cash Flow From Operations (CFOP) in 2025 was $164.7bn, meaning that these investments are affordable and the financial position of the company will not be adversely affected by the AI race.
• The same cannot be said for OpenAI, as every time it wants to spend it has to raise the money and it only takes one investment round to go badly for the whole house of cards to fall, handing supremacy in Western AI to Google.
• Google will also suffer greatly from the fallout, but critically, it will be able to cut its capex as it will no longer be in a race, and it will survive to pick up the pieces and dominate the industry.
• This is the time I want to buy Alphabet shares, but in the meantime, it is Google’s suppliers who will benefit most from its largesse.
• Here, Broadcom as a supplier of custom ASICs for AI is a major beneficiary but also Nvidia which will also see increased demand.
• The one I really want to look at is MediaTek, which is coming off a difficult set of results due to the smartphone market but has guided that it will see more than $1bn in revenues this year.
• Given the huge increase in spending we are seeing from all of the hyperscalers, this number could be handily beaten and grow very quickly in FY 2027 and beyond.
• However, MediaTek is trading on 26.5x 2026 and 17.4x 2027, meaning that it does not offer the same value to an investor that Qualcomm does.
• I will be having a closer look at MediaTek to see if I can justify the premium and probably wait for a wobble before taking a position.