Qualcomm delivered fiscal third-quarter revenue that topped Wall Street expectations but issued weaker-than-expected earnings guidance for the current quarter, citing persistent supply chain pressures and rising component costs, sending the chipmaker’s shares lower in after-hours trading.

Semiconductor companies have been facing challenges as surging demand for AI infrastructure, memory and advanced packaging continues to drive up production costs across the industry. While Qualcomm said customer demand remains healthy, higher input costs are weighing on profitability and prompting the company to raise chip prices.

Shares of Qualcomm fell in extended trading after the earnings release.

For its fiscal third quarter, Qualcomm reported adjusted earnings per share of $2.21, slightly below analysts’ expectations of $2.23, according to LSEG. Revenue came in at $9.95 billion, comfortably ahead of the $9.67 billion analysts had expected.

However, investors focused on the company’s outlook.

Qualcomm forecast adjusted earnings per share of $2.05 to $2.25 for the current quarter on revenue of $9.7 billion to $10.5 billion.

Analysts had expected adjusted earnings of $2.36 per share on revenue of $10.02 billion, making the profit outlook the main disappointment despite revenue guidance broadly matching market expectations.

Supply Crunch Drives Higher Costs

Chief Executive Officer Cristiano Amon attributed the cautious outlook to industry-wide increases in manufacturing costs, particularly for memory components.

“The semiconductor industry is experiencing a broad-based increase in input costs, across wafer fabrication, assembly, test, advanced packaging, memory and other materials,” the company said.

Speaking after the results, Amon said Qualcomm will begin increasing prices for its chips from September 1 to offset rising production costs.

“Cost went up, prices are going to go up,” he said.

The comments highlight how the AI boom is affecting the broader semiconductor ecosystem. Explosive demand for high-bandwidth memory (HBM), advanced chip packaging and foundry capacity has tightened supply across the industry, increasing costs even for companies that are not primarily focused on AI accelerators.

For smartphone chipmakers such as Qualcomm, higher memory prices are also affecting consumer purchasing decisions by raising the retail prices of handsets.

Smartphone Market Remains Challenging

Qualcomm’s handset business, which remains its largest source of revenue, generated $5.1 billion in sales during the quarter, down 20% from a year earlier.

Management said the decline reflects a smartphone market that remains under pressure, particularly in China, although executives suggested conditions may be stabilizing. Amon said affordability concerns have weakened demand for low-end and mid-range smartphones, while even premium Android buyers are increasingly opting for lower-priced flagship models or previous-generation devices.

“Consumer preference within the premium category is changing towards a preference to the lower end of the premium, as well to last year’s phone, because of the memory price increases,” he said.

He added that higher supply costs have also compressed profit margins but described the pressure as temporary.

“There’s also a change in gross margin because of the high supply cost that you’re all hearing about. It’s a temporary, short-term thing we are addressing with price increases.”

While smartphones remain Qualcomm’s core business, the company continues to broaden its revenue base into faster-growing markets.

Automotive revenue climbed to $1.59 billion, making it one of the strongest-performing segments.

On Wednesday, Qualcomm also announced a new agreement with BMW to supply digital cockpit chips, further strengthening its position in connected vehicle technology.

The company has previously said it expects automotive revenue to reach $10 billion annually by 2029, reflecting growing demand for advanced driver assistance systems, infotainment platforms and software-defined vehicles. Its Internet of Things (IoT) division, which includes industrial chips, wearables and smart glasses, generated $1.83 billion in revenue, an increase of 9% from a year earlier.

The expansion of these businesses is central to Qualcomm’s long-term strategy.

Amon said the company expects non-smartphone businesses to account for 60% of total revenue next year, reducing its historical dependence on the cyclical handset market.

Qualcomm is also positioning itself to capture a larger share of the AI infrastructure market. The company reaffirmed its goal of generating $5 billion in data center revenue next year, as it seeks to compete in AI computing beyond mobile devices.

On Wednesday, Qualcomm also announced it had completed its acquisition of Modular, a startup known for developing AI programming technologies.

The acquisition strengthens Qualcomm’s software capabilities and complements its effort to build a broader AI ecosystem spanning chips, software and developer tools.

The company said it plans to unveil its new AI software platform at a conference in August.

Licensing Business Remains Resilient

Qualcomm’s high-margin licensing business continued to provide stable earnings. Revenue from Qualcomm Technology Licensing (QTL), which generates royalties from the company’s extensive portfolio of wireless communications patents, reached $1.28 billion, slightly above analysts’ expectations.

The licensing division remains one of Qualcomm’s most profitable businesses and helps cushion fluctuations in semiconductor sales.

Net income declined 25% to $2 billion, from $2.66 billion a year earlier, indicating margin pressure from rising manufacturing costs.

Even so, Qualcomm’s latest results suggest the company’s long-term diversification strategy continues to gain momentum. Growth in automotive, IoT and AI infrastructure is helping offset weakness in smartphones, while its licensing business continues to generate stable cash flows.

The near-term challenge remains navigating elevated production costs driven by the AI supply chain. Demand for advanced memory, packaging and manufacturing capacity has pushed costs higher across the semiconductor industry, forcing companies such as Qualcomm to pass some of those increases on to customers.

Looking ahead, investors will be watching whether Qualcomm’s planned price increases can restore margins without further dampening smartphone demand. The pace at which newer businesses such as automotive and AI data centers become larger contributors to earnings will also be monitored.

Meta Platforms’ shares fell nearly 10% in extended trading on Wednesday after the social media giant issued weaker-than-expected revenue guidance and revealed that its aggressive artificial intelligence spending sharply eroded free cash flow, reinforcing investor concerns over the mounting cost of the industry’s AI arms race.

Although Meta exceeded Wall Street’s revenue expectations for the second quarter, investors focused on slowing user growth, a sharp decline in profitability and another substantial increase in capital expenditure as Chief Executive Mark Zuckerberg doubles down on building AI infrastructure.

The results add to a broader trend among technology giants, with Alphabet recently reporting negative free cash flow for the first time as a public company and Microsoft continuing to invest tens of billions of dollars in data centers to support AI demand. Together, the earnings underscore a growing divide between companies that are rapidly monetizing AI through cloud services and those still investing heavily ahead of future returns.

Meta reported earnings per share of $6.18, well below analysts’ expectations of $7.22, while revenue rose to $60.8 billion, narrowly beating the consensus estimate of $60.17 billion.

However, the company forecast third-quarter revenue of between $61 billion and $64 billion, implying a midpoint of $62.5 billion that fell short of analysts’ expectations of $63.15 billion. Meta said foreign exchange movements are expected to reduce year-over-year revenue growth by about one percentage point.

The company also reported 3.6 billion daily active users across its family of apps, slightly below Wall Street estimates of 3.61 billion, suggesting that user growth is becoming increasingly difficult to sustain at Meta’s massive global scale.

AI Spending Weighs on Financial Performance

The biggest concern for investors was the financial impact of Meta’s accelerating AI investment. Free cash flow collapsed to just $784 million during the quarter from $8.55 billion a year earlier, reflecting an unprecedented level of spending on data centers, computing infrastructure and next-generation AI models.

Meta also raised the lower end of its 2026 capital expenditure forecast, narrowing its expected spending range to between $130 billion and $145 billion, compared with previous guidance of $125 billion to $145 billion.

The revised outlook confirms that Meta remains among the world’s largest investors in AI infrastructure as it races against rivals including OpenAI, Microsoft, Alphabet, Amazon and Anthropic.

Unlike Microsoft, Amazon and Alphabet, which generate substantial cloud-computing revenue that helps offset infrastructure costs, Meta has traditionally relied almost entirely on advertising revenue. That has heightened investor scrutiny over whether the company’s AI investments can produce meaningful returns quickly enough.

Zuckerberg Bets on AI Services Beyond Advertising

Management sought to reassure investors that Meta’s AI infrastructure will ultimately support multiple revenue streams beyond its core advertising business.

“We expect that a significant portion of our compute is going to go towards training our models, growing our core business, and delivering personal agents and new products,” Zuckerberg said during the earnings call.

“But we also expect to grow a large business serving large customers as well.”

This suggests Meta intends to commercialize excess computing capacity by leasing it to enterprise customers, potentially creating a cloud-style business that could diversify the company’s revenue base over time.

Zuckerberg noted that demand for computing resources has already exceeded expectations.

“We’re getting a lot of offers for compute at a significant premium over what we paid for it,” he said.

That strategy would represent a significant shift for Meta, whose AI investments have historically focused on improving advertising efficiency and consumer products rather than selling computing infrastructure.

The earnings report follows several major AI announcements that highlight the scale of Meta’s long-term ambitions. Earlier this month, the company introduced its Muse Spark 1.1 model, which AI chief Alexandr Wang described as the company’s strongest model yet for coding and autonomous AI agents while offering lower costs than competing models from OpenAI and Anthropic.

Meta has accelerated its AI push since hiring Wang in 2025 as part of a $14.3 billion investment in Scale AI.

Infrastructure spending has expanded alongside those ambitions.

This week, Meta announced a partnership with BlackRock to develop a $14 billion AI data center in El Paso, Texas. That project follows plans disclosed earlier this month for a data center in Alberta, Canada, valued at approximately $9 billion, and the company’s Hyperion AI campus in Louisiana, whose expected cost exceeds $50 billion.

The projects illustrate how hyperscalers are committing hundreds of billions of dollars to AI infrastructure in anticipation of sustained demand for advanced computing.

Expenses Surge As Profitability Weakens

Meta’s total costs and expenses jumped 55% year over year to $42.03 billion. The increase included $2.4 billion in legal charges and $1.18 billion in severance costs related to workforce reductions that began earlier this year.

Chief Financial Officer Susan Li said operating income would have increased 9% excluding those one-time items, suggesting the underlying business remained resilient.

Even so, net income declined to $15.85 billion from $18.34 billion a year earlier, reflecting the combined impact of higher spending and special charges.

Meta’s Reality Labs division, which develops virtual reality headsets, smart glasses and other next-generation computing platforms, continued to generate significant losses. The unit posted an operating loss of $4.6 billion while generating $431 million in revenue.

Although those losses remain substantial, they were modestly better than analysts had expected. Wall Street had forecast a loss of approximately $5.07 billion on revenue of $423.4 million.

For much of the past two years, investors rewarded companies for announcing increasingly ambitious AI investments. More recently, attention has shifted toward whether those investments can generate sufficient earnings growth to justify unprecedented capital spending.

Meta’s latest results suggest that question is becoming more pressing. Revenue continues to grow, advertising remains resilient, and AI engagement is improving across the company’s platforms. Yet soaring infrastructure costs, shrinking free cash flow and a softer-than-expected revenue outlook indicate that the financial benefits of Meta’s AI strategy are still lagging behind the scale of its investment.