After the U.S. stock market closed on July 29th, Qualcomm and Arm released their earnings reports one after the other.
Starting with Qualcomm. Its revenue was $9.947 billion, exceeding the consensus estimate of $9.67 billion. However, non-GAAP earnings per share (EPS) were $2.21, missing the expected $2.23. More crucially, the guidance for the next fiscal quarter is revenue of $9.7 billion to $10.5 billion and EPS of $2.05 to $2.25. According to Reuters' statistics, the market consensus was $2.36 per share, meaning even the upper end of Qualcomm's guidance is below expectations. This isn't 'beating expectations'; it's revenue beating, profits slightly missing, and guidance significantly missing.
Now, Arm. Its shareholder letter was clean, with revenue of $1.289 billion and adjusted EPS of $0.45 both exceeding expectations, and next-quarter guidance also beating. Its stock price fell 8.11% that day, a drop that occurred during the regular trading session before the earnings release. After the report came out, the stock barely moved, but then fell another 7% to 8% in after-hours trading following the conference call. A Bloomberg news article URL still contained the phrase 'beat doesn't impress', while the displayed headline had been changed to 'Arm Drops as Smartphone Slowdown Outweighs Data Center Growth'.
What happened in between? Both companies mentioned the same word in their reports: memory.
Phone Shrinks, Cars Keep It Alive
A page in Qualcomm's official earnings presentation materials specifically addressed the Android phone business. It stated that due to memory price increases and supply constraints, Android phone revenue for the QCT segment in fiscal 2026 is expected to decline approximately 20% year-over-year, dragging down full-year EPS by more than $1.50. It also announced price increases for its products effective September 1st to pass on rising input costs.
This page is the most direct evidence in these two reports. The memory price surge translated to KRW 89.49 trillion in operating profit for Samsung, and here for Qualcomm, it's a bill itemized down to $1.50 per share.
It's also visible in gross margins. Qualcomm's GAAP gross margin this quarter was 53.1%, compared to 55.6% last year. According to a transcript of the call, management described QCT gross margins as 'slightly below our historical range', attributing it to rising memory and other input costs.
This quarter, handset revenue was $5.086 billion, down 20% year-over-year. Automotive revenue was $1.588 billion, up 61%, marking the 23rd consecutive quarter of double-digit growth. The distance between these two bars on the chart is narrowing rapidly, with automotive quarterly revenue approaching one-third of handset revenue for the first time.
There's a longer-term issue on the phone side as well. The official presentation states that due to supply constraints, the decline in revenue from Apple products will accelerate starting in the fourth fiscal quarter, "Our share of modems on the upcoming iPhone is expected to be significantly lower than the previous 20% estimate." According to the call transcript, CFO Akash Palkhiwala said Apple revenue will decline by about 50% from the September quarter to the December quarter.
CEO Cristiano Amon offered an even more memorable line during the call. According to Reuters, he said, "We've essentially replaced Apple with data center." The official statement was more cautious, with the presentation materials stating that the year-over-year increase in non-handset revenue in fiscal 2027 will replace all Apple product revenue from fiscal 2026.
The data center line is currently a timeline. The official revenue path is approximately $300 million in fiscal 2026, $5 billion in fiscal 2027, and over $15 billion in fiscal 2029. Of the $5 billion in fiscal 2027, there are custom chips for two hyperscale customers, each contributing over $1 billion. One has been made public: Meta signed a strategic agreement with Qualcomm for a multi-generation CPU roadmap, with the first Dragonfly C1000 not entering production until the second half of 2028.
Seaport Global analyst Jay Goldberg was less generous in his assessment to Reuters, stating Qualcomm "is seeing Android share shift away from it and already lost nearly all of its remaining share at Apple."
Arm's Conference Call Had a Problem
Arm's shareholder letter contained some very nice numbers. Data center royalties more than doubled year-over-year, the second consecutive quarter of doubling. Cumulative shipments of Neoverse architecture cores exceeded 1.5 billion, with the most recent 500 million cores shipped in just 9 months, while the first 1 billion took 6 years. The letter also cited IDC data, stating that spending on Arm-based accelerated server platforms nearly doubled in the past two quarters and has already surpassed x86 platforms.
The dark line on the chart tells a different story. This quarter's royalty revenue was $715 million, up 22% year-over-year, but it did not surpass the $737 million from Q3 of fiscal 2026. That remains Arm's quarterly royalty peak. The licensing fee line has always been volatile, with year-over-year growth swinging between -15% and +72%. The market has always focused on the smoothly ascending royalty line, and this quarter that line did not hit a new high.
What really turned the stock lower was a guidance cut during the call. According to the call record, Arm lowered its full-year royalty growth guidance from approximately 20% previously to the high teens, citing weakness in the smartphone market and high memory prices, and expecting a double-digit decline in the phone market. For the next quarter's segment guidance, licensing fees are expected to grow about 30% year-over-year, while royalties are only in the low teens percentage.
Why No Rally Even After Beating Expectations?
Based on the July 29th close, Arm's forward price-to-earnings (P/E) ratio is 103.66 times, Qualcomm's is 15.22 times—a difference of 6.8 times. Another comparison is more telling: Arm's forward P/E is 5.4 times higher than Nvidia's 19.07 times, while Nvidia's trailing twelve-month revenue is $253.49 billion, 49 times that of Arm.
A TechTimes post-earnings analysis explained this mechanism clearly, stating that at a forward P/E of 100 to 120 times, "a clean beat no longer pushes the stock price higher." This sentence explains a class of phenomena, not just Arm's. When valuation has already discounted growth for several years into the future, the function of earnings reports shifts from providing surprises to confirming assumptions, and any deviation from confirmation gets amplified.
There's another variable most reports didn't mention. According to reports, the U.S. Federal Trade Commission launched a formal antitrust investigation into Arm starting in May 2026, examining whether its launch of in-house AGI CPUs could weaken or lead to refusal to license CPU architecture to competitors, with parallel investigations in Korea and by the European Commission. If regulators ultimately mandate non-discriminatory pricing, the margin assumptions in Arm's long-term model targeting $25 billion revenue by fiscal 2031 would need to be recalculated.
Arm's in-house chip line did see progress this quarter. The shareholder letter said customer demand for its AGI CPUs now exceeds $2 billion, spanning fiscal years 2027 and 2028, double the $1 billion opportunity disclosed last quarter, with new customers including multiple clients in the U.S. and China. Jefferies' estimate to Reuters was more optimistic than the company's, suggesting this business could reach $18 billion by fiscal 2031, above Arm's own $15 billion estimate.
It's Not Just About Two Companies
According to statistics, the Philadelphia Semiconductor Index fell 18.2% in July, after doubling in the first half of this year. Nineteen tech stocks fell more than 25% in July, most of them semiconductors, and seven of those still have triple-digit gains year-to-date.
The arrangement of points in the chart below is clear: the ones that fell the most in July are generally the ones that rose the most this year. SanDisk fell 40.4% in July but is still up 471% year-to-date. Micron fell 26.5% in July, up 197% year-to-date. Arm fell 36.6% in July, up 105.7% year-to-date.
Qualcomm is the exception. It fell 15.75% in July and is down 8.99% year-to-date. It's not in the group with squeezed valuations because it has no AI premium to squeeze. The consensus rating from thirty-six analysts is Hold, with an average target price of $220.57, about 40% above the current price. Forty analysts give Arm a consensus Buy rating.
Two other earnings reports from the same day can be viewed together. Microsoft revenue of $90 billion, Azure growth of 43%, its stock rose about 8% after hours at one point. Meta revenue of $60.8 billion, growth of 28%, but net profit declined, its stock fell 8% to 10% after hours. Samsung's operating profit hit a record, but its stock barely moved that day.
The memory price surge allowed Samsung to earn in one quarter what Nvidia earned at its peak, while the other half of the same bill was accounted for by Qualcomm and Arm, each writing it once in their respective reports.
