We're Downgrading a Chip Holding, Sharing Our Revised Plan
We see multiple headwinds on the horizon that could weigh on these shares.
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Ahead of Friday morning’s December Employment Report and potential ruling by the Supreme Court on President Trump’s tariffs, the stock market is heading for a mixed open. We walked you through potential outcomes of the December non-farm employment figure and the Unemployment rate and what they could mean for the market yesterday. Once we’ve digested the report, we’ll share our updated thoughts in quick fashion.
While we wait, Taiwan Semiconductor (TSM) reported its December revenue rose 20.5%, year over year, and led revenue for the December quarter to climb 20.45% on that basis to $33.04 billion, besting market expectations for $32.72 billion. In its reports, TSM does not provide end-market commentary, but we can surmise the strength was driven by AI and data center demand, as well as seasonal strength in smartphones and PCs.
The read-through on that for TSM customers such as Nvidia (NVDA) , Apple (AAPL) , Qualcomm (QCOM) , Marvell (MRVL) , and Broadcom (AVGO) is that business has been vibrant. Comments associated with Foxconn’s December revenue report back that up. Let’s remember, Foxconn’s other comment that it sees AI and data-center server demand remaining strong in the current quarter, but it also sees normal seasonality for smartphones, PCs, and other connected devices. Odds are TSM will have similar comments when it reports its full December-quarter results next week.
In our December Monthly Roundup, we shared the concern about rising memory prices and memory companies like Samsung and Micron Technology (MU) shifting their mix to better accommodate demand related to AI and data center and what that could mean for PC and smartphone shipments in the coming quarters. And earlier this week, we discussed Intel (INTC) and Advanced Micro Devices (AMD) upping their efforts for the AI PC market, a key part of Qualcomm’s revenue diversification efforts.
Tallying those items, the outlook for Qualcomm in the first half of 2026 looks more challenging, especially because in the near-term, the bread-and-butter business remains the smartphone market. And recall that we flagged the company’s expected EPS growth for the coming year to be up slightly compared to 2025. The risk we see is that EPS in H1 2026 is revised lower. As you know, we want to be owners in companies poised to deliver superior EPS growth — flat EPS doesn’t land in that camp.
With that in mind, we are inclined to use near-term strength in QCOM shares to add to other holdings. With TSM poised to deliver an upbeat December-quarter report next week, that could present such an opportunity. Candidates include Broadcom, Arista Networks (ANET) , Eaton (ETN) , Microsoft (MSFT) , and Welltower (WELL) . As such, we are downgrading QCOM shares to a Three rating from Two.
At the time of publication, TheStreet Pro Portfolio was long NVDA, AAPL, QCOM, MRVL, AVGO, ANET, ETN, MSFT and WELL.
