Qualcomm ( QCOM ) stock is again in the spotlight as Bank of America initiated coverage with an “underperform” rating, indicating that the semiconductor and telecommunications giant may not achieve strong growth in the coming years. The company is facing problems due to concentration of its customers and increasing competition in the semiconductor industry.
Analyst Vivek Arya said Qualcomm is currently in a dominant position in smartphone processor sales but pointed out that the entire smartphone industry is growing. Therefore, it is difficult for Qualcomm to achieve incremental sales in the coming years as its key customers work to develop their own chipsets. This warning is especially important for investors at a time when the semiconductor industry is highly competitive and dynamic in terms of technological developments.
Qualcomm is currently working towards expanding its business in areas such as the automotive, Internet of Things (IoT), and artificial intelligence (AI) data center markets. However, it appears that these markets may not grow at a rate sufficient to compensate for Qualcomm’s declining business in its traditional segments such as smartphones.
Qualcomm is one of the world’s leading semiconductor and telecommunications equipment companies. Its headquarters are in San Diego, California. The company currently designs and sells system-on-chip processors and modem chips for use in smartphones and other devices. Its products are used in various industries such as automotive, industrial, and Internet of Things (IoT) markets.
Qualcomm is currently one of the most dominant semiconductor companies in the world, with a market capitalization of about $143 billion. QCOM stock has traded between about $120 and $205 over the past 12 months. It currently trades at the low end of that range and is underperforming its semiconductor peers.
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Valuation measurements indicate that Qualcomm is undervalued compared to other semiconductor stocks. It has a trailing price-to-earnings (P/E) multiple of 13.8x and a forward P/E of 16.2x. Meanwhile, its sales multiple is 3.33x. Qualcomm also has a P/E-to-growth multiple of 6.9x, indicating that it has limited growth potential compared to other chipmakers.
Qualcomm recently announced fiscal first quarter 2026 revenue of $12.25 billion, representing a 5% increase from fiscal first quarter 2025 results. However, its benefits have shown mixed results. Its GAAP net income decreased 6% compared to fiscal 2025 first quarter results. Diluted earnings per share (EPS) also decreased slightly to $2.78.
On the other hand, its non-GAAP EPS results showed a 3% increase to $3.50. Results of its semiconductor segment, known as QCT, generated revenue of $10.6 billion during the first quarter of fiscal 2026, driven by continued demand for mobile chipsets.
Its handset revenue grew 3% to $7.82 billion. Its automotive revenue rose by 15% to $1.1 billion as it expands its presence in connected cars. IoT revenue also increased by 9% to $1.69 billion as IoT devices increasingly require connectivity.
However, it also noted that smartphone demand is still affected by memory supply constraints and high component costs. It is expected to affect the shipment of these handsets in the future.
Bank of America’s downgrade is largely centered around structural risks in Qualcomm’s core business. One of the biggest risks is Qualcomm’s gradual loss of business with Apple ( AAPL ), which would wipe out $7 billion to $8 billion in annual revenue, as Apple makes a full transition to chips in-house.
Qualcomm is also dealing with changing dynamics in its business with other major smartphone makers. Samsung is reportedly reducing Qualcomm’s share of Galaxy smartphone chips from 100% to around 75%. Another smartphone maker, Xiaomi ( XIACY ) is increasing spending significantly on semiconductor design in-house.
Qualcomm is also dealing with rising DRAM costs due to demand for AI servers. The rising costs of the company could affect the smartphone supply chain. These costs may affect handset production, especially in price-sensitive markets such as China.
For a long time, Qualcomm has faced increasing competition in every part of the business trying to diversify. Competition is growing in efforts to grow in the premium smartphone chip business, especially against MediaTek. Qualcomm also faces increasing competition in automotive computer chips from Nvidia ( NVDA ) and Mobileye ( MBLY ).
Although Bank of America is bearish on Qualcomm stock, Wall Street expectations are generally balanced, with a consensus rating of “Moderate Buy” and an average price target of $164.69. This represents a potential upside of around 22% as Qualcomm successfully executes its business diversification strategy and maintains profitability in its core business.
However, analysts’ estimates differ significantly. Qualcomm stock currently has a high estimate of $205 and a low estimate of $132.
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As of the date of publication, Yannis Zorumpanos had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
