Bernstein Downgrades Qualcomm Rating, Says Investors "Can Buy Into the Real AI Winner"

Investing.com - Bernstein has downgraded Qualcomm from Outperform to Market Perform and lowered the target price from $175 to $140, citing rising memory costs and weak smartphone demand casting a shadow over the chipmaker’s outlook.

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Analyst Stacy Rasgon said that memory price dynamics are becoming a major headwind, with significant increases in mobile DRAM and NAND costs expected to pressure smartphone production.

He stated in a report, “The ongoing memory headwinds within the industry seem likely to negatively impact overall smartphone shipments (which could see double-digit declines this year),” as higher component costs force suppliers to either raise prices, reduce specifications, or accept margin pressures.

Rasgon also believes that Wall Street’s expectations remain overly optimistic. Although Qualcomm issued guidance earlier this year that was already lowered, he thinks “the numbers (which we already considered somewhat high) now look much too high,” noting that weak smartphone sales and declining revenue related to Apple are expected to continue into the end of the year, posing further downside risks.

Apple’s transition remains a key concern. The analyst said that the expected decline in Apple modem shipments has not been fully reflected in market expectations, and this shift is likely to accelerate before year-end.

He warned that Apple’s share of Qualcomm’s modem business could drop sharply from around 80% to about 20%, creating significant revenue headwinds, and that market consensus still underestimates this impact.

Rasgon also pointed out that licensing revenue related to Apple contributes about $1.50 per share, with current agreements expiring in April 2027. While he expects Qualcomm to ultimately win any disputes, he cautioned that the process could be volatile and weigh on market sentiment, as past cases have shown.

Meanwhile, potential positive catalysts are seen as insufficient to offset broader pressures. Qualcomm announced a $20 billion buyback plan and may hold an event focused on data centers, but Rasgon said these are unlikely to change market sentiment, especially given stronger opportunities in other areas of the semiconductor industry.

“We feel a bit disappointed in this company; they seem to be doing everything right, but are currently living in a tough environment,” he wrote.

Rasgon added, “We suspect things will get worse before they get better, and although our numbers still show the stock as extremely cheap, when investors can buy a true AI winner at less than 15 times earnings, that no longer acts as a support.”

“If we see signs of improvement in this environment, we will be happy to revisit.”

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