Qualcomm dips on Wells Fargo downgrade, firm cites chip weakness, high smartphone exposure
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Qualcomm (NASDAQ:QCOM) shares fell slightly more than 2% in premarket trading on Monday as Wells Fargo downgraded the semiconductor company, citing the overall weakness in the space, as well as the company's "high" exposure to smartphones.
Analyst Gary Mobley lowered his rating to underweight from equal-weight but kept the firm's $105 price target, noting that the change is rating is "consistent" with previous downgrades to Qorvo (QRVO) and Skyworks Solutions (SWKS), both of which are heavily tied to smartphones.
"Once investor sentiment toward the chip sector turns more positive, or once investors are convinced we've reached a trough in the chip cycle, we believe shares of companies w/high smartphone exposure should underperform the broader chip sector," Mobley wrote in a note to clients.
Specifically relating to Qualcomm (QCOM), Mobley said shares are likely to keep trading at a discount to peers because investors are likely to assign a lower earnings multiple to companies that have exposure to the "no-growth" mobile handset market.
Mobley also noted that investors could start to value Qualcomm (QCOM) based on its earnings per share power, excluding its modem and its RF front-end shipments to Apple (AAPL), as shipments are believed to continue to dwindle over time.
Last month, Qualcomm (QCOM) took the wraps off its first augmented realty platform for glasses at its Snapdragon summit, Snapdragon AR2 Gen 1.
Analysts are largely bullish on Qualcomm (QCOM). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates QCOM a HOLD.