We're Trimming This Tech Holding's Price Target, Despite Strong Earnings

Despite Qualcomm QCOM delivering consensus-topping quarterly results and issuing guidance that essentially bookends June-ending quarter consensus forecasts, we are seeing the shares under pressure. Part of that reflects some overly aggressive price target cuts from the likes of Benchmark and Baird from $240-$250 to $200-$216, but as we pointed out in our Microsoft MSFT comments this morning, tariff uncertainty and the prospect that current quarter demand was pulled forward into the March quarter is likely another factor. We think that pull forward helped goose demand for smartphones, PC, and other devices, which helped fuel Qualcomm’s March quarter beat. We saw that in Microsoft’s More Personal Computing segment results last night and what that means for that business in the current quarter.

Helping offset that near-term tariff uncertainty, Qualcomm reiterated its 2029 target that calls for non-handset revenue to reach $22 billion compared to the annualized March quarter pace of $10.16 billion. We’ve discussed this multiple times in recent months as Qualcomm looks to contend with Apple’s AAPL internal modem efforts as well as diversify its own revenue stream by tapping the AI PC, IoT, and automotive markets, reducing its reliance on the smartphone market. Those plans are still in play long-term, and while we saw nice progress in the March quarter, the near-term uncertainty associated with potential Trump tariffs on PCs, smartphones, and related devices is an overhang and one that is going to lead to more conservative assumptions. That’s what is likely behind some of those QCOM price target cuts we are seeing this morning.

At the same time, we could see that uncertainty removed with a tweet or a trade deal announcement, but as we’ve discussed we aren’t in the camp that sees a quick resolution. For that reason, we will trim our Qualcomm price target to $180 from $200. Despite the cut, because we want to capture the transformation in Qualcomm’s business mix and the valuation re-think that will spur, we will maintain our "One" rating on the shares but recognize they could be dead money near-term. As fresh data becomes available, we will revisit our price target and if need be our rating as required. With QCOM shares falling in response to the earnings report, given the position size in the Portfolio, we may be a buyer in the coming days as the shares settle out but for members who are underweight the shares, this latest pullback is a nice spot to collect some shares.

Catalysts we will be watching include upcoming quarterly results from Apple, Skyworks SWKS, and others tied to the smartphone market, PC comments from AMD AMD, monthly revenue reports from Taiwan Semiconductor TSM, and Qualcomm management’s appearance on May 14 at the J.P. Morgan 53rd Annual Global Technology Media and Communications Conference. We expect to be doing quite of bit of “connecting the dots” at that conference given the high probability it will be a hotbed of activity during the halfway point for the current quarter.

Now let’s get to Qualcomm’s quarterly results and guidance.

The March-Ending Quarter

Qualcomm reported March quarter EPS of $2.85 per share, edging out the $2.82 market consensus as revenue climbed double-digits year over year to $10.98 billion vs. the $10.64 consensus and $9.4 billion in the year-ago quarter. The company’s chip business, better known as QCT, posted an 18% year-over-year revenue increase led by stronger gains in automotive and IoT. While the rate of growth for the much larger handset business was slower, at 12% year over year, it too was better than expected given the typical seasonal pattern.

We attribute that to a combination of Apple’s iPhone taking market share during the quarter as well as Qualcomm benefiting from the continued shift toward premium smartphones, where it has higher dollar content. During the earnings call, when discussing tariff uncertainty Qualcomm management called out its global supply chain and that has us thinking about the 82%-83% of the global smartphone market outside of the U.S. and not subject to tariffs. The same goes for the ~75% of the PC market that is outside the U.S. While those may not be impacted by tariffs, it does explain the stronger showing for U.S. demand in the March quarter that we’ve seen in industry data from Canalys and others.

Exiting the March quarter, Qualcomm had $12.5 billion remaining under its current share repurchase program after scooping up $1.7 billion in shares during the quarter. Given where the shares are trading, we would not be shocked to see the company flex this program near-term.

June-Ending Quarter Guidance and Outlook

For the June quarter, Qualcomm guided consolidated revenue to $9.9 billion-$10.7 billion with EPS between $2.60 to $2.80 compared to the market consensus of $2.67 in EPS on revenue of $10.33 billion. As we said above, the company’s guidance largely bookends the market’s view, but compared to the results of the June 2024 quarter it delivers only modest improvement. Because of that and tariff uncertainty, it’s not surprising folks are taking a more cautious stance and that likely means near-term the smartphone and PC story will be a “show me” one.

Breaking down Qualcomm’s outlook for the quarter, it sees handset revenues up around 10% year-over-year, thanks primarily to further gains in Android, while its IoT and automotive revenues grow approximately 15% and 20% respectively versus a year ago. Given program wins, including 90 flagship designs shipping or announced globally across major Android OEMs, and 14 commercial vehicle launches during the March quarter (29 over the last six months) we see a stronger 2H 2025 for Qualcomm compared to 1H 2025.

One item we will need to monitor will be the pace of Apple adopting its internal modem solutions across its array of iPhone models. We continue to see that as a phased-in approach with Apple overtime working its way up to its Pro models. With that in mind, in the coming months, as new iPhone and other models are delivered, we will want to check the corresponding tear-down analysis and the components they reveal. 

At the time of publication, the Pro Portfolio was long MSFT, AAPL, QCOM, AMD.