Qualcomm stock is off to a strong start in 2024, rising nearly 19% year-to-date. Now up 39% over the past 12 months, the smartphone chip provider is being boosted by optimism that end-market demand will recover, as well as the rise in artificial intelligence that is likely to come.
However, ahead of the company's March quarter earnings report on May 1, there is a debate on Wall Street about how to view the stock price.
JPMorgan analyst Samik Chatterjee on Thursday added Qualcomm stock to his firm's “negative catalyst” watch list, but maintained an overweight rating on the stock with a price target of $170.
Analysts suggest that recent optimism that mobile phone sales will recover may be a bit misplaced. “We have yet to see any major changes in the fundamentals of the smartphone market, and we expect the recovery to remain slow in 2024,” he wrote in his research note. And Chatterjee added that recent data on China's smartphone market raises concerns about the strength of the expected recovery.
Chatterjee said sales for the March quarter appeared to be $9.5 billion, above the $9.3 billion midpoint of Qualcomm's guidance range and street consensus tracked by FactSet. But he believes the June quarter outlook is broadly in line with $9.1 billion, which is not enough for investors.
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“Despite strong stock performance, near-term stock price reaction is likely to be difficult as the market's driving force, upside, is subdued,” he wrote. “It is important to recognize that the downside to earnings forecasts is not expected and that premium valuations are the main driver of the difficult setup.”
Bernstein analyst Stacey Rasgon on Thursday expressed a long-term upbeat view on Qualcomm stock, reiterating the stock's outperform rating and raising her price target from $170 to $200, from current levels. It suggested an increase of about 18%.
In short, Rasgon believes Qualcomm could benefit greatly from the increased focus on running AI workloads at the edge of the network, on smartphones and PCs.
“Generative AI has been a hot topic for over a year now, and the potential of edge AI is growing as both companies and investors begin to consider how to ultimately bring these new technologies to the masses. “Sex is gaining momentum now,” Razgon wrote in his research notes.
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He added that Qualcomm, with its computing architecture that includes not only CPUs (central processing units) and GPUs (graphics processing units), but now also NPUs (neural processing units), is “taking center stage in that story.” I think it has the potential to become For AI. His view is that Qualcomm's position should expand when it comes to smartphone “content” as AI work moves to the edge of the network.
He also pointed out that Qualcomm is showing signs of improvement in the PC space with its new Arm-based Snapdragon ing.
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Rasgon acknowledged that it's not yet clear how Arm-based PCs will be valued, but Qualcomm could ultimately generate “billions” in annual revenue from AI PCs. It claims its revenue will be “probably $1.” Additional earnings per share.
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Rasgon wrote that he believes there are three ways edge AI can benefit Qualcomm. The first is more content per device. Although the smartphone industry has been “pretty sluggish for quite some time,” the industry is moving toward high-end devices, with average selling prices up about 40% since 2018, he noted. He notes that Qualcomm is seeing “strong growth in content.” And he thinks the introduction of AI will help Qualcomm stay on that track.
“While management themselves have suggested that AI implementation could sustain premium tier content growth rates of 10-15% per year, we believe this trajectory will prove to be conservative. “There is,” he wrote.
Another opportunity is increasing market share, he said. “We believe Qualcomm's new components appear to compete very favorably on multiple AI benchmarks compared to market alternatives, and we believe they maintain a leadership position, especially in the upper tiers of the market. ” he writes.
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Rasgon adds that the third, and perhaps biggest, potential opportunity is if AI smartphones drive upgrade cycles. But he's not convinced that will happen, at least for now. He believes that the trends for AI phones could be similar to those for 5G, with lower unit demand but potentially higher prices and content per phone.
“The development of 'killer apps' and more robust use cases may ultimately drive larger upgrade cycles at some point, of course, but I wouldn't bet on that yet. ” Rasgon wrote. “But we don't think that's necessary.”
Qualcomm stock rose 0.7% to $172.
Email Eric J. Savitz at eric.savitz@barrons.com.