[2021] DPS weapon drops ? Bug ?

By default, quality on weapons increases the physical damage of the weapon. In the first screenshot, this is occuring.

In the second screenshot, the weapon now has a modifier which says:

Quality does not increase Physical Damage

Grants 1% increased Area of Effect per 1% Quality

Thus the 35% quality is no longer increasing the weapon's physical damage, but instead causing it to grant you increased AoE.