Although Qualcomm (Qualcomm stock) efforts to diversify its business, a market analyst at Wells Fargo does not believe the move will significantly impact its shares.
After rating Qualcomm’s stock (NASDAQ:QCOM) as Equal Weight or Hold equivalent, analyst Gary Mobley decided on Monday to cut his rating for the company’s stock to Underweight, which is the same as a Sell rating. His price goal of $105 has stayed the same since before.
On Monday, Qualcomm stock increased by 0.2%, although it is still down 35% for the year.
This year has been challenging for manufacturers of semiconductors due to the rapid acceleration of inflation to levels not seen in the previous four decades, which has reduced the market for chips used in electronic devices ranging from personal computers to smartphones. This year, the iShares Semiconductor exchange-traded fund (SOXX), which follows the performance of the industry’s most prominent semiconductor businesses, has experienced a loss of 33 percent. According to analysts such as Sidney Ho of Deutsche Bank, the suffering is not over.
But Mobley predicted that Qualcomm shares would continue to trade at a discount to the company’s competitors even after investor sentiment on chip stocks turned positive.
One of the analysts’ reasons is Apple’s (AAPL) decision to develop its internal modem for the iPhone 16, which the company did. Apple 2019 purchased the smartphone-modem division of Intel (INTC) to wean itself off of reliance on Qualcomm.
During a conference call to review the company’s profits for the fourth quarter, Qualcomm’s Chief Financial Officer Akash Palkhiwala stated that he anticipates “little contribution from Apple product revenue in fiscal 2025,” which begins in October 2024.
Qualcomm will likely need to make up for this loss in the future, thus, the company has increased its focus on the automotive market. The company’s automotive business brought in sales of $1.37 billion for the fiscal year 2022, representing a 41% increase compared to the previous fiscal year. During a conference call earlier this month, Palkhiwala expressed his belief that “the technologies we have in phones [have] become tremendously relevant to the auto business.”
Mobley recognizes that the auto industry is becoming a significant contributor to revenue. Still, he anticipates that the smartphone market will be directly tied to around two-thirds of the overall revenue in the fiscal year 2025. He reasoned that the car segment “just is not substantial enough to move the needle for Qualcomm,” pointing out that the market accounted for only 3% of overall sales in the fiscal year 2022.
In the upcoming financial year (2026), the business anticipates that the automotive division will bring in revenue of $4 billion. Mobley stated that despite this, it would only account for a “very tiny percentage” of Qualcomm’s overall business.
According to the expert, the thought that its future performance will mainly continue to be related to smartphones is a concerning indicator because it indicates that smartphones will continue to play a significant role.
“We believe investors will continue to factor in a discount to smartphone-exposed names,” Mobley said. “The rapid decline in demand for smartphones coupled with the easing of supply constraints has caused elevated inventory levels in handset,” he said. “[T]hese two factors have caused elevated inventory levels in handset.”
Qualcomm Stock Outlook
Credit Suisse and KeyBanc Capital Markets have analysts with a bullish outlook on Qualcomm stock, but for different reasons.
Credit Suisse analysts said that compared to other businesses in the industry, Qualcomm’s current trading level of 13.5 times the company’s estimated earnings in 2023 is “quite affordable.” As a result, Credit Suisse chose Qualcomm as its top selection in November.
Featured Image – Megapixl © nikkimeel
Author Valerie Remorosa 
