The semiconductor industry is known for its cyclical nature and has been through one of its height phases. However, Christopher Rolland of Susquehanna says the cycle is peaking.
“Lead times and valuation multiples in the industry have risen to levels well above their historical averages,” says Roland. With the segment declining, Rolland thinks it’s time for a reassessment of one of the giants of the chip industry – Qualcomm (QCOM).
And it is not positive. Rolland downgraded QCOM’s rating from positive (ie buy) to neutral (ie hold) and lowered the price target from $ 175 to $ 155. Still, the revised target could yield investors a return of 14% in the coming months. (To view Rolland’s track record, click here)
Over the past decade, Qualcomm has “seen some harrowing ups and downs,” says Rolland, though the five-star analyst hails the company for a “wonderful turnaround since 2017.” The reversal of the trend has resulted in the “exceptional performance” of the stock in recent years.
However, there are several “future risks” that explain the downgrade. These include: “1) short-term benefits (long-term headwinds) from over-orders and high prices; 2) license and royalty battles in the future, as handsets and 5G technology become more and more popular; 3) a renewed and competitive offering from MediaTek; 4) delivery issues (transceiver delivery from Samsung, Texas more specifically); and 5) most importantly, Apple’s “doubling” of modem and (some) RF independence in ’23 / ’24 and beyond. “
That said, Rolland believes he could make the wrong decision. Qualcomm has skillfully worked their way through several clashes with the FTC and Apple, victorious in lawsuits and “reconnecting with their biggest customer.”
Rolland also emphasizes his belief that Susquehanna identified the RF opportunity for Qualcomm from the outset, which could still be in the “early innings” with accelerated RF wins.
“Trusted contacts tell us the company may be bundling RF to get 5G modems that are tight,” noted Rolland as an example.
However, these positives are not enough to convince Rolland that the bullcase is worth it right now.
Rolland joins a growing trend on Wall Street. The analyst downgrade is the third in the last 12 days. Based on 8 buy and hold each, the stock currently has an average buy consensus rating. The average price target remains positive, with a 24% increase expected for the coming year at $ 168.14. (See QCOM Stock Analysis on TipRanks)
To find great ideas for trading tech stocks at attractive valuations, check out TipRanks ‘Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ insights on stocks.
Disclaimer: The opinions expressed in this article are solely those of the Recommended Analyst. The content is provided for informational purposes only. It is very important to conduct your own analysis before making an investment.