Wolfe Research downgraded Qualcomm (NASDAQ:QCOM) to Peer Perform from Outperform, removing its price target for the stock, citing growing concerns about the impact of Apple (NASDAQ:AAPL) internal modem on Qualcomm's future revenue.
The analysts highlight that while Qualcomm had previously downplayed the potential threat, the situation has now changed.
"It's no surprise that AAPL has been pursuing a modem," Wolfe Research noted, adding that Apple's prior failures led many to see this as a "boy who cried wolf" situation.
However, Wolfe Research says recent checks suggest that Apple's modem is indeed coming to market, which could significantly impact Qualcomm's business.
According to the investment firm, Qualcomm had previously guided that it would supply modems for only 20% of the iPhone 18 models, but analysts now expect a more significant impact, starting with the iPhone SE in the spring and ramping up with the iPhone 17.
By the time the iPhone 18 is released, Apple's modem is likely to be in all phones outside the U.S.
"Despite QCOM's prior comments, we don't think this is fully in Street estimates - we're adjusting our numbers accordingly," stated Wolfe Research.
The firm estimates a revenue impact of $4 billion and an EPS impact of $1.50 between 2024 and 2026 due to this shift.
Despite Qualcomm's efforts to diversify, including focusing on AI handsets and IoT, Wolfe Research remains cautious, stating that these areas will be a "tougher sell to investors."
Given these challenges, Wolfe Research finds it difficult to maintain a bullish stance, despite Qualcomm's current valuation of 15x FY26 EPS.
The analysts conclude that the loss of Apple revenue and uncertain growth catalysts make it challenging to continue defending the stock's previous outlook.