As the world'ss largest smartphone processor manufacturer, Qualcomm (QCOM) has become the latest chipmaker to disappoint investors despite issuing an optimistic earnings outlook.

Although the company's sales and profit forecasts for the quarter significantly exceeded Wall Street analysts' estimates, its shares still fell 3% in the following trading session.

This scenario has become increasingly common. Earlier this week, Advanced Micro Devices (AMD) also failed to impress investors with its strong revenue guidance, despite riding the AI wave that has significantly boosted its stock. Similarly, Micron Technology (MU) saw comparable market reactions following its September earnings report.

Jay Goldberg, an analyst at Seaport Global Securities, noted that while Qualcomm hasn't been Wall Street's AI darling, its recent stock rebound may have set expectations unrealistically high. "Investors were hoping for even greater upside," he said.

Additionally, adjustments to U.S. tax policies last quarter impacted Qualcomm's profitability, resulting in a $5.7 billion asset write-down and a net loss of $3.12 billion. Other tech firms, including Meta Platforms (META), have also reported substantial one-time expenses due to tax changes.

However, Qualcomm stated that the tax policy shift will prove beneficial long-term, stabilizing its effective tax rate at 13%–14%. Without the adjustment, the rate would have risen further.

For the first quarter of fiscal 2026 (ending December), Qualcomm projects sales of approximately $12.2 billion and adjusted earnings per share (EPS) of $3.40, surpassing analyst expectations of $11.6 billion in revenue and $3.26 EPS.

The outlook reflects sustained demand for premium Android smartphones, a key revenue driver. Meanwhile, CEO Cristiano Amon's diversification strategy—expanding into automotive, PCs, and data centers—is gaining traction.

In Q4 (ended September 28), Qualcomm reported adjusted EPS of $3.00 (vs. $2.88 estimates) and revenue of $11.3 billion (up 10% YoY), beating the $10.8 billion forecast. Handset-related revenue rose to $7 billion (above the $6.65 billion consensus), while IoT and automotive segments contributed $1.81 billion and $1.05 billion, respectively.

In contrast, Arm Holdings (ARM), another critical smartphone tech supplier expanding into AI data centers, received a more positive market response after surpassing quarterly estimates.

Qualcomm is also aggressively entering the AI space. In late October, it unveiled a new AI chip series to challenge Nvidia's data center dominance, with shipments slated for next year and Saudi-backed AI startup Humain as an early adopter.

The San Diego-based chipmaker faces intensifying competition in smartphones, particularly as Apple (AAPL) phases out Qualcomm's modem components in favor of in-house designs.