Shares of Qualcomm (NASDAQ: QCOM) tumbled 8.01% on Tuesday, closing at $204.13 and shedding approximately $19 billion in market capitalization. The steep decline came amid reports that the chipmaker is in advanced talks to acquire AI startup Modular for a price tag reportedly around $4 billion, nearly five times the amount of the loss itself. The deal has not yet been finalized and could still fall apart.
The selloff mirrored a broader downturn in the semiconductor sector, with the Philadelphia Semiconductor Index sliding 7.9%. Qualcomm lagged behind peers Nvidia, which fell 4.1%, and Broadcom, down 3.1%. According to Baird strategist Ross Mayfield, the AI trade had become highly concentrated and flow-driven, leaving it susceptible to sentiment swings.
Bloomberg reported late Monday that Qualcomm is in late-stage negotiations to acquire Modular, a deal that would value the startup at 150% above its $1.6 billion valuation just nine months ago. In addition, Qualcomm has been exploring a potential acquisition of chip startup Tenstorrent, with a price tag estimated between $8 billion and $10 billion. Combined, these two deals could cost Qualcomm between $12 billion and $14 billion, representing 1.2 to 1.4 times the company's cash and marketable securities of $9.8 billion as of March 29. Qualcomm also carries $15.27 billion in debt.
The potential acquisitions raise questions about how Qualcomm will finance them and what impact they may have on shareholder returns. In the first half of the fiscal year, Qualcomm generated $7.4 billion in operating cash flow and spent $5.4 billion on share repurchases. Any large deal could alter those buyback plans.
The drop came just ahead of Qualcomm's investor day in New York, where management is expected to outline its data-center strategy at 2:15 p.m. EDT Wednesday. CEO Cristiano Amon has previously stated that a custom-chip deal with a major hyperscaler is on track for initial shipments later this calendar year. Investors are eager for concrete revenue forecasts and dates for the data-center business.
In the latest quarter, Qualcomm's handset revenue totaled $6.02 billion, accounting for nearly two-thirds of chip revenue, but handset sales fell 13% year over year. Automotive revenue jumped 38%, though the company does not break out data-center sales as a separate line item.
Analysts are divided on the outlook. Bank of America's Vivek Arya maintained an Underperform rating, raising his price target to $195 from $165, still about 4.5% below Tuesday's close. Arya described Qualcomm as a late entrant in a fast-growing but hyper-competitive AI market dominated by large incumbents, facing a potential short-term hit of $2 billion to $5 billion. UBS analyst Timothy Arcuri sees more upside, suggesting that data centers and agent-based computing could add roughly $20 billion to Qualcomm's financial model. Year to date, Qualcomm shares are still up about 19% despite Tuesday's decline.
The outcome of Wednesday's investor meeting will be critical. If Qualcomm provides a named customer, clear sales targets, and solid margin projections, the recent drop may prove to be just a sector-wide slump. However, vague forecasts or news of debt-financed acquisitions amid soft handset sales could further erode the AI premium in the stock. Investors are watching for details on the data-center business and how any deals will affect cash returns to shareholders.
