Can Qualcomm (QCOM) Stock Make a Comeback?

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Qualcomm (NASDAQ:QCOM) stock is sinking 9% in early trading after the chipmaker’s guidance for its current quarter came in below analysts’ average estimate.

As reasons for the weaker-than-expected outlook, QCOM cited reduced “supply constraints” in the chip sector and its decision to lower its estimate of 2022 mobile phone sales growth.

A number of Wall Street analysts responded to the news by slashing their price targets on QCOM stock.

Qualcomm’s Guidance and the Reasons Behind It

For its current fiscal Q1, QCOM expects its top line to come in at $9.2 billion to $10 billion, well below analysts’ average estimate of $12.05 billion. Moreover, the chipmaker anticipates that it will generate Q1 earnings per share of $2.225-$2.45, versus analysts’ mean estimate of $3.43.

Within the chip sector, there has been a “rapid deterioration in demand and easing of supply constraints,” QCOM explained. As a result, Qualcomm’s biggest customers are utilizing their inventories of chips more extensively, the company noted.

Meanwhile, citing “uncertainty caused by the macroeconomic environment,” Qualcomm now expects the sales of 3G, 4G, and 5G mobile phones to tumble by” a low double-digit percentage” year-over-year. Previously, the chipmaker had expected the sales of such devices to drop only by around 5% YOY.

QCOM Stock: Analysts’ Reactions and Reasons for Optimism

Many analysts lowered their price targets on QCOM following the company’s guidance miss. Cowen analyst Matthew Ramsey lowered his price target on QCOM stock to $165 from $185. He believes that the “smartphone inventory correction” has spread from Android phones in China around the world “and into premium tiers,” The Fly reported. The analyst, however, kept an “outperform” rating on QCOM.

Among other firms, Wells Fargo slashed its price target on QCOM to $105 from $125, while Morgan Stanley’s was cut to $126 from $147.

On a positive note, Qualcomm reported that it expects to supply “the vast majority” of the components of 5G modems for the new iPhones expected to be introduced by Apple (NASDAQ:AAPL) next year. Additionally, over time, the demand for smartphones should rebound as the ratio of consumers’ consumption of services and goods normalizes. Additionally, in the longer term, inventory drawdowns of smartphone chips should decline meaningfully.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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