On Monday, Wolfe Research adjusted its stance on Qualcomm (NASDAQ:QCOM) stock, moving from an "Outperform" rating to "Peer Perform". The revision comes amidst expectations that Apple (NASDAQ:AAPL)'s in-house modem development will begin to affect Qualcomm's business.
The analyst noted that while the premium Android market has stabilized, the company's growth prospects in artificial intelligence (AI) handsets and the Internet of Things (IoT) may prove more challenging to sell to investors.
Qualcomm's stock currently trades at approximately 15 times the firm's revised calendar year 2025 earnings per share (EPS), which aligns with their forecast for fiscal year 2026. This valuation marks an increase compared to the average price-to-earnings (P/E) ratio of around 14 times that Qualcomm has seen over the past five years.
The downgrade is rooted in the belief that Apple's move to an internal modem will have a tangible impact on Qualcomm's modem business. Additionally, the analyst suggests that the growth avenues for Qualcomm in AI-enabled handsets and IoT devices might not be as compelling to investors as previously thought.
The report also outlines potential risks to Wolfe Research's outlook. These include the possibility of stronger than anticipated handset unit growth, unforeseen technical issues with Apple's modem, or IoT growth exceeding expectations. These factors could potentially alter the current trajectory and valuation of Qualcomm's stock.
Qualcomm, a major player in the semiconductor industry, provides chips and technologies for a wide array of devices and has been a key supplier for many smartphone manufacturers, including Apple. The company's future performance is now closely watched as the market absorbs the implications of these new developments.
InvestingPro Insights
In light of Wolfe Research's recent rating change for Qualcomm (NASDAQ:QCOM), examining the company's financial metrics and analyst sentiment can provide a deeper understanding of its investment profile. Notably, Qualcomm has demonstrated a commitment to returning value to shareholders, having raised its dividend for an impressive 21 consecutive years. This aligns with the company's solid financial footing, as indicated by a market capitalization of approximately $183.23 billion and a healthy dividend yield of 2.07%. Additionally, the company's P/E ratio stands at 21.18, suggesting a premium valuation relative to near-term earnings growth.
Despite recent challenges, Qualcomm's stock has experienced a significant 1-year price total return of 46.79%, highlighting its strong performance over a longer period. Moreover, 19 analysts have revised their earnings estimates upwards for the upcoming period, reflecting a positive outlook on the company's profitability, which has been affirmed over the last twelve months. These InvestingPro Tips underscore Qualcomm's robust position in the Semiconductors & Semiconductor Equipment industry and its potential resilience in the face of new market dynamics.
For investors seeking further insights and analysis, additional InvestingPro Tips are available, providing a comprehensive view of Qualcomm's investment potential. Visit the dedicated page for Qualcomm on InvestingPro to explore more tips and data that could inform your investment decisions.
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