On Wednesday, Mizuho (NYSE:MFG) Securities adjusted its outlook on Qualcomm (NASDAQ: QCOM), reducing the price target to $215 from the previous $245 while sustaining an Outperform rating on the stock. According to InvestingPro data, Qualcomm, currently valued at $175.45 billion, appears slightly undervalued based on comprehensive Fair Value analysis, with 19 analysts recently revising earnings estimates upward for the upcoming period.
The firm's analysis indicates that Qualcomm's momentum in augmented reality (AR) with its GenAI smart glass and early launch of the Snapdragon Gen 4, along with the anticipated PC market tailwinds through to 2026, informed by the Arm-native Windows 11 Refresh, are significant factors in its performance.
With a healthy PEG ratio of 0.44 and strong financial metrics (discover more insights with InvestingPro's comprehensive research report), the company appears well-positioned to execute its growth strategy.
The analyst from Mizuho believes that the early release of Qualcomm's Snapdragon 8 Gen 4 chip has led to increased orders in December from handset customers for their fall and winter models. This is expected to align with the typical market seasonality by March 2025. Qualcomm is also targeting the PC market with its system on chips (SoCs) that are priced between $100 and $250, showing a 10% price increase compared to the previous generation.
These chips boast improved AI, TOPS, and NPU performance. Current PC design wins are projected to rise from approximately 20 in the summer of 2024 to over 100 by the year 2026, potentially covering 70% of the PC market and aiding in surpassing the company's goal of a 10% market share.
Additionally, the anticipated Windows 11 refresh, which will feature native compatibility with Arm processors, is seen as a positive development for Qualcomm. The company is also optimistic about its prospects in the extended reality (XR) market, as AI use cases continue to grow, potentially outpacing its current expectations and leading to a revenue target for fiscal year 2029 that exceeds the initial $2 billion estimate.
Qualcomm remains on track with its diversification strategy, aiming to achieve $22 billion in revenue from automotive, XR, PC, and industrial segments by fiscal year 2029. This approach is part of its plan to mitigate the potential impact from the loss of its partnership with Apple (NASDAQ:AAPL).
The company's strategic moves to expand its presence in various markets are a key part of its efforts to maintain growth and offset any significant headwinds. InvestingPro data shows promising momentum with 8.77% revenue growth in the last twelve months and a projected 9% growth for FY2025, supported by a strong balance sheet with liquid assets exceeding short-term obligations.
In other recent news, Qualcomm Inc (NASDAQ:QCOM). is facing a significant trial against Arm Ltd over a dispute regarding AI chip licensing. The outcome could impact the future of artificial intelligence computing. The case revolves around Qualcomm's use of Arm's intellectual property and its acquisition of chip startup Nuvia in 2021. Arm has not sought financial damages but demands that Qualcomm destroy all Nuvia designs.
In leadership transitions, Qualcomm's Chief Technology Officer, Dr. James H. Thompson, announced his retirement, with Dr. Baaziz Achour set to succeed him. Dr. Achour, currently serving as Deputy CTO, will assume full responsibilities as CTO upon Dr. Thompson's retirement.
From the analysts' perspective, TD Cowen maintained a positive outlook on Qualcomm, reiterating a Buy rating and a $200.00 price target. This optimism is based on Qualcomm's diversification strategy, particularly in the automotive sector and its advancements in AI. Melius Research, however, initiated coverage with a Hold rating and a $180.00 price target, projecting a slowdown in Qualcomm's revenue growth.
In terms of financial performance, Qualcomm recently reported non-GAAP revenues of $10.2 billion and earnings per share of $2.69. The chipset segment contributed $8.7 billion in revenues, while the licensing segment brought in $1.5 billion. Record revenues of $899 million were reported in the automotive market.
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