Qualcomm stock falls after new autos, PC targets fail to wow investors

Qualcomm (QCOM) stock fell as much as 6% on Wednesday, a day after the company provided new financial targets for its non-smartphone business at its first Investor Day in three years.

Qualcomm, which gets the majority of its revenue from both designing and licensing handset chips, has been expanding into semiconductors that go into cars, personal computers and other devices.

The company now expects those businesses to generate a combined $22 billion in sales by 2029.

Eight billion dollars of that will come from Qualcomm’s automotive segment, where it already has partnerships with the likes of BMW to increase computing functionality in vehicles and push toward more autonomous driving.

Qualcomm forecast that $14 billion will come from its Internet of Things segment, which includes extended reality devices and industrial functions. It also includes PCs, expected to account for $4 billion. The company’s Snapdragon X Elite chips power Microsoft’s latest generation Surface laptops, which feature the GenAI Copilot assistant.

“Everybody that buys an X Elite is extremely happy with it,” Qualcomm CEO Cristiano Amon said in an interview following the Investor Day in New York.

“From all of our OEMs (original equipment manufacturers) and Microsoft, the current response is exceeding everybody’s expectation.” Amon called the $4 billion target for the PC business “high confidence.”

Some analysts, however, said the road there may not be smooth.

“While management is optimistic about AI PC opportunities, Windows-on-ARM skepticism and intense competition (from both x86 and ARM SoC suppliers) could limit QCOM’s opportunity,” Raymond James’ Srini Pajuri wrote in a note to clients. He has a hold-equivalent “market perform” rating on the stock.

Bank of America’s Tal Liani rates Qualcomm a “buy,’ and “came away incrementally positive on Qualcomm’s long-term positioning and the diversification outside of handsets.”

But Liani pointed out that not only is the company entering markets with emerging tech, but that it also needs to grab market share.

“These markets need to develop to support Qualcomm’s long-term targets, of which the pace and magnitude is uncertain,” he wrote.

Lisbon , Portugal - 12 November 2024; Cristiano Amon, CEO & President, Qualcomm, on Centre Stage during day one of Web Summit 2024 at the MEO Arena in Lisbon, Portugal. (Photo By Shauna Clinton/Sportsfile for Web Summit via Getty Images) — Cristiano Amon, CEO & President, Qualcomm, on Centre Stage during day one of Web Summit 2024 at the MEO Arena in Lisbon, Portugal. (Photo By Shauna Clinton/Sportsfile for Web Summit via Getty Images) · Shauna Clinton via Getty Images

Qualcomm’s biggest business remains smartphones, and its ramped-up diversification comes as Apple is working on migrating away from Qualcomm modems. As for the Android-based business, Amon said he’s projecting mid-single-digit growth, what he calls a “conservative assumption.”

That means the company expects to end the decade with its revenue about evenly split between handsets at 50% and autos and Internet of Things combined for the other 50%.

“The narrative of solid earnings power even ex-AAPL seems alive, and in general the assumptions don’t appear to require any huge stretches,” wrote Bernstein’s Stacy Rasgon, who has an “outperform” recommendation on Qualcomm shares.

Qualcomm shares have lagged this year amidst that expected Apple transition, rising just under 7% compared with the Philadelphia Semiconductor Index’s (^SOX) 16% gain.

So what about AI? Amon expects adoption of smartphones with more AI capabilities to be an unpredictable process, but one that’s ultimately beneficial for Qualcomm.

“It is hard to make a prediction because at the end of the day, it’s all based on what developers are going to come up with,” he said in the interview.

“I can go back to the conversation between feature phones and smartphones and Blackberries and smartphones — started with 10 apps, then a hundred apps, then thousands of apps, and then you start to see the big switch. And I feel the same way about AI use cases. I can’t really tell you it’s gonna be this year or next year. I can tell you within five years I think we are gonna have all using an AI smartphone,” he added. “Anything that happens faster, it’s gonna be an upgrade cycle that we’re gonna benefit tremendously.”

Julie Hyman is the co-host of Market Domination on Yahoo Finance. You can find her on social media @juleshyman.

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