Bernstein has downgraded Qualcomm to Market-Perform from Outperform and reduced its price target to $140 from $175, pointing to mounting headwinds from increased memory costs and weakening smartphone demand.
Analyst Stacy Rasgon highlighted accelerating memory price dynamics as a principal concern. He expects sharp rises in mobile DRAM and NAND costs to pressure smartphone assemblies, saying the memory environment could have "a likely deleterious effect on overall smartphone shipments (with potential for double-digit unit declines this year)." Rasgon explained that higher component prices will force device makers to choose among raising prices, lowering specifications, or accepting squeezed margins.
Rasgon also argued that consensus expectations on Qualcomm remain overly optimistic. Although Qualcomm previously issued lower guidance earlier in the year, he said the model numbers that already appeared elevated now look too high. He identified two principal downside risks: weaker smartphone unit volumes and an anticipated step-down in Apple-related revenue later in the year.
The analyst described the Apple transition as a central issue for Qualcomm’s revenue outlook. He believes the expected reduction in Apple modem volumes is not fully captured in market estimates and anticipates that the shift will accelerate into year-end. Rasgon warned that Apple’s contribution to Qualcomm’s modem revenue could tumble from roughly 80% to about 20%, creating a material revenue headwind that consensus seems to underestimate.
On licensing, Rasgon noted that Apple-related licensing contributes roughly $1.50 of earnings per share and that the current licensing agreement is due to expire in April 2027. While he expects Qualcomm to ultimately prevail in any dispute, he cautioned the process could be volatile and weigh on investor sentiment, as has happened previously.
Bernstein also assessed potential positive catalysts and found them insufficient to offset the headwinds. Qualcomm has announced a $20 billion share buyback and could hold a datacenter-focused event, but Rasgon said these initiatives are unlikely to substantially change market sentiment, especially given what Bernstein views as stronger opportunities elsewhere in the semiconductor sector.
Expressing some sympathy for the company, Rasgon wrote that Qualcomm appears to be executing correctly but is "living in a bad neighborhood at the moment." He added that "we suspect things get worse before they get better, and while the stock remains extremely cheap even on our numbers, that becomes less of a support when one can buy actual AI winners for under 15x on 'realistic' estimates." He concluded that if industry conditions improve, Bernstein would be willing to revisit its view.
Context and implications
Bernstein’s downgrade centers on two interconnected issues: rising component costs that could reduce smartphone shipments and the imminent reduction in Apple-related modem and licensing revenue. The combination of those factors, in Bernstein’s view, creates downside risk to Qualcomm’s near-term financial performance and investor sentiment despite corporate actions such as buybacks.