Why Qualcomm's latest diversification plans aren't enough to help its stock

MW Why Qualcomm's latest diversification plans aren't enough to help its stock

By Emily Bary

Qualcomm seems to be preparing for a world without Apple business, but one analyst thinks the company's PC targets look aggressive

How will Qualcomm Inc. look if it loses its Apple Inc. $(AAPL)$ chipset business, a prospect many on Wall Street see as inevitable?

The company gave a glimpse of its future on Tuesday while rolling out long-term targets at an investor day and talking up opportunities in newer areas.

"And while they did not touch on handsets all that much, it is clear that they believe they can grow the overall business over time even as they continue to plan for [Apple] chipset sales to drop out," Bernstein analyst Stacy Rasgon wrote in a note to clients.

He noted that "the overall strength of Qualcomm's technology and product roadmaps came across in spades across chipsets, hardware/software integration, [intellectual property] and scale, accompanied by numerous major customer testimonials in all their key segments."

But the road map doesn't seem to be enough for investors, with Qualcomm shares $(QCOM)$ trading off by more than 6% in midday action Wednesday.

Rasgon flagged that Qualcomm "did not uptick their auto pipeline or targets (though it did sound like they do expect upside over time), and their Android outlook ... seems a bit unambitious given all their talk about edge [artificial intelligence] potential."

He still has an overweight rating on the stock, along with a $215 target price.

Cantor Fitzgerald analyst C.J. Muse further unpacked what might be nagging at investors. Qualcomm has a plan to gain ground in personal computers, but Muse thinks Qualcomm's $4 billion fiscal 2029 revenue target there would translate to about 10% of the market, a potentially aggressive goal.

"We recognize [Qualcomm's] low-power benefit in PCs but just simply do not see x86 standing still with risk, more likely a shrinking of the economic earnings as opposed to 10% PC market share" for Qualcomm, he wrote. Muse was referring to the x86 industry-standard architecture designed by Intel Corp. $(INTC)$ for its PC processor.

Opinion: Intel and AMD take a backseat as Qualcomm plays starring role in Microsoft's AI PCs

Qualcomm's planned diversification beyond handsets struck him as "exciting," as the company sees "high-growth" opportunities within the Internet of Things, for one. But he also worried that the company's timeline is "somewhat slow with now some risk to some of the assumptions inside IoT and clear near-term headwinds as potentially Apple falls off faster than diversification can provide an offset."

Muse has a neutral rating and $160 target price on the shares.

Susquehanna's Christopher Rolland was more upbeat.

"In short, we continue to have confidence in CEO [Cristiano] Amon's ability to move [Qualcomm] beyond a modem and cellular [intellectual-property] company to become a true broad-based semis player, reinforced by the constructive update" at the company's investor day, he wrote. "That said, if there was one knock, we think the loss of Apple will weigh until 2027."

He upped his target price to $230 from $210, while keeping a positive rating.

See more: Nvidia earnings are on deck. Here are the 5 big things to know.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

November 20, 2024 13:16 ET (18:16 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.