Qualcomm’s Strong Earnings Beat Boosts Shares, Apple Relationship in Question
Qualcomm, the chip maker, experienced a surge in its stock price following its strong earnings beat, much to the delight of Wall Street analysts. However, the future of Qualcomm’s relationship with Apple remains uncertain, casting a shadow over the company’s stock.
The earnings results surpassed expectations, driving Qualcomm’s shares up by 5.6% to $117.10 in premarket trading on Thursday. This positive development has the potential to be a turning point for the company, which has seen relatively stagnant performance this year due to weaker smartphone sales impacting demand for its mobile processors and 5G wireless chipsets.
Analyst John Vinh from KeyBanc lauded Qualcomm’s performance, stating that the revenue and earnings per share outperformed consensus estimates. He attributed this success to stabilizing Android demand and the clearance of inventory destocking. Vinh maintained an Overweight rating on Qualcomm stock with a target price of $145 and expressed optimism about continued strong demand for Android smartphones, especially in China, as the December quarter approaches.
Recognizing the need to diversify beyond the smartphone market, Qualcomm is expanding into other sectors such as automotive chips and AI-capable processors for personal computers. This move puts Qualcomm in direct competition with major players like Intel and Advanced Micro Devices (AMD). While Intel’s stock witnessed a 0.3% increase in premarket trading and AMD a 0.6% increase, Susquehanna Financial Group analyst Christopher Rolland believes that Qualcomm’s focus on new edge AI capabilities will drive growth in 2024. Rolland raised the target price for Qualcomm to $140 from $130 and maintained a Positive rating on the stock.
Despite Qualcomm’s impressive performance, its turbulent relationship with Apple remains a point of contention. Although Qualcomm is set to supply Apple with 5G chips for their upcoming iPhone launches over the next three years, it is anticipated that Apple will eventually transition to using their in-house chips, significantly impacting Qualcomm’s business. Analyst Rick Schafer from Oppenheimer noted that there is a lingering concern of losing a substantial portion of Qualcomm’s business to Apple, estimating a potential loss of $10 billion. Schafer maintained a Perform rating on Qualcomm stock without providing a specific target price.
In conclusion, Qualcomm’s robust earnings beat has bolstered its shares, generating enthusiasm among Wall Street analysts. However, the future of Qualcomm’s relationship with Apple remains uncertain, with Apple’s eventual shift toward in-house chips looming. This development poses a significant challenge for Qualcomm’s business outlook. As the company seeks to diversify its offerings, it faces stiff competition from industry giants like Intel and AMD. Overall, analysts remain cautiously optimistic about Qualcomm’s prospects, recognizing both the opportunities and risks that lie ahead.
