Qualcomm's Shift From Handsets To AI And Automotive Wins Analysts' Confidence

Several Wall Street analysts reiterated Qualcomm Inc QCOM after the company’s 2024 investor day.

• Cantor Fitzgerald analyst CJ Muse reiterated Qualcomm with a Neutral and a $160 price target.
• KeyBanc analyst John Vinh maintained Sector Weight on Qualcomm with a price target of $165.
• Rosenblatt analyst Kevin Cassidy reiterated a Buy on Qualcomm with a price target of $250.

Cantor Fitzgerald: At the IoT and Automotive Diversification Update Investor Day, Qualcomm outlined its plans to shift revenue reliance from handsets to higher-growth segments like Automotive, IoT, PCs, XR/AR, and Industrial applications. Muse noted that Qualcomm’s Automotive segment is a standout performer, with the company projecting over $8 billion in revenue by fiscal 2029 at a 22% compound annual growth rate (CAGR).

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More than 80% of this forecasted revenue is supported by backlog, providing confidence in this segment’s outlook. However, IoT’s projected jump from $5.4 billion in fiscal 2024 to $14 billion in fiscal 2029 raised skepticism, mainly the PC segment target of $4 billion, which assumes a 10% market share at an average selling price of $175. Muse sees significant competitive pressure from x86-based systems, making the target aggressive.

The XR/AR revenue projection of $2 billion by fiscal 2029 appears more feasible, given partnerships with significant players like Meta, Alphabet, Google and Samsung. IDC’s forecast of a 35% CAGR for the XR market are a supporting factor. Despite the optimistic outlook for XR, overall assumptions for IoT, PC, and Industrial/Other revenue leave room for potential overestimation.

Qualcomm management maintained its long-term operating expense target at 21%-23% of revenue. The company anticipates fiscal 2029 EPS reaching $14.12, representing a 7% 5-year CAGR from $10.28 in fiscal 2024. While diversification efforts are poised to make IoT and Automotive account for 50% of total QCT revenues by fiscal 2029, Muse expressed concerns about the pace of transition, particularly with potential headwinds from Apple reducing reliance on Qualcomm’s chipsets faster than other segments can offset.

Muse projected fiscal 2025 revenue of $43.15 billion and EPS of $11.37. He expects fiscal 2026 revenue of $41.1 billion and EPS of $11.45.

KeyBanc: Qualcomm revised its Automotive revenue target to $8 billion by fiscal 2029, doubling its fiscal 2026 projection of $4 billion. This goal implies a 22% compound annual growth rate (CAGR) over five years, reflecting strong momentum in this segment.

The company set an ambitious target of $4 billion in PC revenue by fiscal 2029, assuming an 11% market share. This aligns with its broader IoT goal of $14 billion, including contributions from XR, Industrial IoT, and other categories.

Within IoT, Industrial IoT is expected to generate $4 billion by fiscal 2029, translating to a 21% five-year CAGR. This growth underscores Qualcomm’s strategic shift toward high-growth verticals to reduce reliance on handset revenue.

Qualcomm anticipates mid-single-digit (MSD) long-term growth for Android handsets. However, factoring in the expected transition of Apple to its internal modems, overall QCT revenue is forecasted to grow at a low-single-digit (LSD) rate over the next several years, with a 6% five-year CAGR through fiscal 2029.

While Qualcomm presented compelling long-term growth projections across critical segments, Vinh expressed caution about the need for catalysts for an edge AI replacement cycle in handsets, PCs, and other devices. Additionally, the anticipated impact of Apple’s internal modem transition poses a significant headwind, though Qualcomm management expressed confidence in its ability to sustain growth despite these challenges.

Rosenblatt: Qualcomm presented a highly attended investor day focused on its diversification strategy first outlined in 2021, emphasizing accelerated adoption of its platforms driven by AI.

Cassidy highlighted Qualcomm’s leadership in addressing diverse markets through its energy-efficient processors, advanced connectivity, and AI capabilities. Significant revenue growth is projected across Automotive, PC, XR, and Industrial IoT.

Qualcomm set a $45 billion design win pipeline for its QCT Automotive segment, with one-third tied to Advanced Driver Assistance Systems (ADAS). The company forecasts $8 billion in automotive revenue by fiscal 2029, representing a 22% compound annual growth rate (CAGR). With the total addressable market (TAM) expected to double to $100 billion by fiscal 2029, the automotive segment remains a key growth driver.

Qualcomm’s Snapdragon X Series has achieved 2.5 times growth in design wins, with 58 platforms announced. By fiscal 2029, the company targets $4 billion in PC revenue, driven by the proliferation of AI-enabled notebooks. Qualcomm projects that 90% of PCs will incorporate AI features, with 100 million devices leveraging Copilot+ annually.

Qualcomm anticipates $4 billion in Industrial IoT revenue by fiscal 2029, capitalizing on a $50 billion market opportunity by 2029. In XR (AR, VR, and MR combined), the company expects over $2 billion in fiscal 2029 revenue, with unit volumes reaching 15 million annually.

• Overall IoT revenue is expected to grow 2.5x to $14 billion by fiscal 2029.
• By 2030, Qualcomm estimates a $900 billion TAM for connected edge devices
• In 2024, revenue grew 9% year-over-year (Y/Y)
• EPS increased 21% Y/Y.
• Since fiscal 2019, revenue has doubled, and EPS has tripled, supported by a 31% CAGR in automotive revenues and double-digit growth in handsets and IoT.

Adjusted operating expenses are projected to remain at 21-23% of revenue. Qualcomm also plans low-to-mid single-digit dividend growth and share buybacks as part of its capital allocation strategy.

Qualcomm aims to achieve a balanced revenue mix, targeting a 50/50 split between the handset and non-handset segments by fiscal 2029. This strategy reduces customer concentration risk and leverages growth opportunities in emerging markets like AI-enabled PCs, automotive, and industrial IoT. By scaling AI adoption at the edge, Qualcomm solidifies its position as a leader in high-growth markets while navigating challenges in its handset business.

Cassidy projected fiscal 2025 revenue of $42.9 billion and EPS of $11.59. He expects fiscal 2026 revenue of $45.35 billion and EPS of $12.49.

Price Action: Qualcomm stock traded lower by 5.94% at $154.91 at the last check on Wednesday.

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