Qualcomm will be among the chip stocks struggling in the new year due to its exposure to smartphone sales, Wells Fargo warned Monday. Analyst Gary Mobley downgraded the stock to underweight from equal weight. Mobley also maintained his price target to $105, which implies a downside of 11.8% over Friday’s close. “Our Underweight rating reflects our desire to make sure we have the right ratings on the right stocks once investor sentiment turns more positive and once we see signs the chip cycle is hitting a bottom,” he said in a note to clients. “Once investors are convinced we’ve reached a bottom in the chip cycle, we believe the sector may rally.” Qualcomm slid 2.6% before the bell. It has dropped 34.9% this year. Mobley said Qualcomm and other companies that have performance tied to smartphone demand will struggle, as the number of smartphones is likely to decline in 2023 and then grow modestly afterward. A flattening of 5G penetration will also hamper these chip names. Smartphones are considered a big-ticket purchase that consumers may be more likely to skip or think more thoughtfully about as inflation pinches pocketbooks. Apple has faced questions over the performance of its iPhone 14 line this year after canceling planned production increases . The company has tried to diversify to include auto and internet technology. But Mobley said this outside exposure is not large enough to buoy the company, pointing to the fact that more than 60% of its expected chip revenue in fiscal year 2025 will be linked to the smartphone market. — CNBC’s Michael Bloom contributed to this report.
© heardonwallstreet.com