HSBC downgraded Qualcomm (NASDAQ:QCOM) to Hold in a note Wednesday, citing a lack of catalysts and a less bullish AI PC narrative.
Despite a slight increase in target price to $200 from $190, analysts remain cautious about the stock's near-term performance.
In their note, HSBC says Qualcomm's Q3 FY24 results are expected to be in line with consensus, with anticipated revenue of $9.3 billion, close to the consensus estimate of $9.2 billion. Gross margin (GM) for Q3 FY24 is projected at 55.9%, slightly below the consensus of 56.1%.
However, concerns loom for Q4 FY24, where HSBC anticipates revenue to be flat quarter-over-quarter at $9.3 billion, missing the consensus estimate of $9.8 billion due to lower handset revenue projections. The gross margin for Q4 is also expected to decline to 55.6% from the consensus of 55.9%.
HSBC highlights persistent uncertainties in the smartphone market, especially with China’s Android handset market expected to decline by 15% quarter-over-quarter.
The introduction of the 3nm-based Snapdragon Gen 4 is also expected to dilute gross margins due to increased costs outpacing the average selling price (ASP) premium. Additionally, potential unit shipment losses from 4G SoCs at Huawei add to the concerns.
Regarding the AI PC narrative, HSBC has revised its expectations downward following mixed reviews post-Computex. Initially optimistic about Qualcomm’s early mover advantage with its Snapdragon X Elite/X Plus processors, HSBC now expects Qualcomm to ship only 600,000 AI CPUs in FY24, far below earlier market expectations of 1-1.5 million. This revision translates to a significant reduction in projected AI CPU revenue.
Given these factors, HSBC has cut its FY24/FY25 EPS estimates by 2% and 9%, respectively. Analysts conclude that while Qualcomm's AI narrative has driven some re-rating, the overall risk-reward profile is now less attractive, with approximately 5% downside implied by the new target price of $200.