BofA cuts Qualcomm target on near-term smartphone chip sales risks

Bank of America reduced its price target on Qualcomm to $200 from $245, citing a peaking handset market and headwinds from China, Samsung, and Apple's planned modem switch. While maintaining a Buy rating, BofA anticipates sequential declines in Qualcomm's smartphone-related revenue despite growth in IoT and automotive sectors. The firm sees long-term potential in AI PCs, connected vehicles, and data centers, projecting non-smartphone categories to comprise 40% of Qualcomm's chip business by 2030, but cautioned that management's IoT growth targets may be optimistic.

Analysis

Bank of America has adjusted its valuation for Qualcomm Inc., lowering the price target to $200 from $245, primarily due to a more cautious outlook on smartphone chip sales, which account for nearly three-quarters of the company's chip revenue. Despite this reduction, a Buy rating is maintained, supported by Qualcomm's long-term diversification strategy and current valuation. BofA highlights that the handset market appears to have peaked, facing headwinds from diminished demand in China, moderated growth at Samsung, and Apple's initiative to develop in-house modems. Consequently, a sequential decline in smartphone-related revenue is anticipated in the upcoming quarters. While Qualcomm's Internet of Things (IoT) and automotive segments demonstrated substantial year-over-year growth of 27% and 59% respectively in the most recent quarter, BofA suggests this momentum might be partly attributable to favorable comparisons from the previous year and expresses skepticism about the optimism of management's IoT growth targets. Nevertheless, long-term growth opportunities are identified in AI PCs, connected vehicles, and data center infrastructure, further bolstered by the recent Alphawave acquisition, which provides Qualcomm a strategic entry into high-speed interconnects vital for AI applications. BofA projects that non-smartphone categories could expand to 40% of Qualcomm's chip business by 2030, up from the current 27%. Reflecting these dynamics, BofA has lowered its earnings and revenue forecasts, now valuing Qualcomm at 15 times projected 2026 earnings, down from a previous multiple of 17. With the stock trading at approximately 12 times forward earnings, below its historical average of 15–18 times, BofA indicates this could represent an appealing entry point for long-term investors.

Key Decisions for Investors

• Investors should consider the current valuation, as Qualcomm trades below its historical forward earnings multiple, which Bank of America views as a potential long-term entry point despite near-term headwinds in the smartphone segment.
• Monitor the progress of Qualcomm's diversification into automotive and IoT, assessing if growth in these areas can sufficiently offset the anticipated slowdown in handset chip revenue and validate BofA's projection of non-smartphone segments reaching 40% of chip business by 2030.
• Evaluate the risks associated with the smartphone market, including competitive pressures from Apple's in-house modem development and demand fluctuations in key markets like China, against the potential upside from emerging technologies like AI PCs and high-speed data center interconnects.