On Wednesday, UBS reiterated its Neutral rating on Qualcomm (NASDAQ:QCOM) stock with a steady price target of $190.00. The firm's analysis highlights Qualcomm's focus on expanding its market reach beyond its traditional handset business, particularly into the automotive sector, which they view as the most promising area for the company.
Despite acknowledging the potential in these adjacent markets, UBS pointed out that Qualcomm is undergoing a transition that will last throughout the decade, with growth expected to be dampened by challenges in the handset segment.
The management at Qualcomm showcased a range of opportunities during the company's Analyst Day, especially in the automotive, augmented/virtual reality, PC, and industrial sectors.
However, UBS noted that even if Qualcomm's licensing business remains stable and the risk of Apple (NASDAQ:AAPL) discontinuing its license payments is disregarded, the projected revenue would only increase to $50 billion annually by the end of the decade.
This figure is only slightly higher than the current Wall Street consensus for the year 2026, which is approximately $46 billion, with UBS estimating a lower figure of around $42 billion.
UBS also remarked on the earlier investor enthusiasm when Qualcomm shares exceeded $210, attributing it to a more optimistic outlook for the company's PC market revenue than what Qualcomm's long-term model now suggests, which is about a 10% market share.
In conclusion, while UBS sees potential in Qualcomm's diversification, particularly in the automotive sector, they believe the growth prospects are not sufficient to generate excitement due to the headwinds in the mobile market and the additional risk associated with Apple's licensing.
In other recent news, Qualcomm Incorporated has announced a strategy to target a total addressable market of approximately $900 billion by 2030.
The company's diversification efforts and leading technology roadmap were discussed during their 2024 Investor Day. Qualcomm projects over 50 billion cumulative shipments of connected edge devices from this year through 2030.
The company's new financial goals for its QCT business aim for combined revenues of $22 billion by FY29, with significant growth expected in the automotive, Internet of Things (IoT), PC, industrial, and extended reality (XR) sectors.
In recent financial updates, Qualcomm reported strong fourth-quarter and fiscal year 2024 results, with non-GAAP revenues of $10.2 billion and earnings per share (EPS) of $2.69. The chipset segment contributed $8.7 billion in revenues, while the licensing segment brought in $1.5 billion. Record revenues of $899 million were reported in the automotive market, indicating a substantial year-over-year increase.
Loop Capital recently initiated coverage on Qualcomm, assigning a Hold rating and setting a price target of $180. The firm highlighted the need for Qualcomm to diversify its revenue streams, particularly in light of challenges such as a maturing smartphone market. Despite these challenges, Qualcomm's diversification into the automotive sector and other markets has positioned it for continued growth.
However, the company anticipates a share reduction by 2026 due to a large customer potentially moving internal. These are recent developments from Qualcomm.
InvestingPro Insights
Qualcomm's strategic pivot towards diversification, as highlighted in the UBS analysis, is reflected in recent InvestingPro data. The company's revenue growth of 8.77% over the last twelve months, coupled with a strong quarterly revenue growth of 18.69% in Q4 2024, suggests that Qualcomm's efforts to expand beyond handsets are gaining traction.
An InvestingPro Tip indicates that Qualcomm is "trading at a low P/E ratio relative to near-term earnings growth," with a current P/E ratio of 18.11. This metric aligns with UBS's cautious stance, potentially reflecting market skepticism about the company's transition period. However, another InvestingPro Tip notes that Qualcomm has "raised its dividend for 22 consecutive years," demonstrating financial stability amidst its strategic shift.
The company's strong EBITDA growth of 14.34% and a healthy operating income margin of 26.32% further support Qualcomm's ability to invest in new markets like automotive and AR/VR. These figures provide context to UBS's assessment of Qualcomm's long-term revenue projections and its potential in adjacent markets.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide deeper insights into Qualcomm's financial health and market position during this transitional period.
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