Citi Cuts Qualcomm's Price Target and Earnings Forecasts for Next Three Years, Maintains Neutral Rating

Citi released a report stating that Qualcomm reported third-fiscal-quarter revenue of $9.95 billion, down 6% sequentially but above the market consensus of $9.7 billion, primarily driven by better-than-expected performance in its automotive business, which accounted for 16% of quarterly sales. Gross margin came in at 53.7%, down 72 basis points sequentially and below the market expectation of 55.3%, mainly due to rising input costs and an unfavorable product mix. Earnings per share (EPS) were $1.52, slightly (1%) below consensus. For the fourth fiscal quarter, the company guided revenue to $10.1 billion, representing a 2% sequential increase and surpassing the market’s forecast of $10.07 billion, again supported by strength in automotive. However, EPS guidance was set at $1.43, below the consensus estimate of $1.58, reflecting gross margin pressure and higher operating expenses. Qualcomm expects its content share in the next-generation iPhone to decline significantly from the previously anticipated 20%, causing Apple-related revenue to drop by roughly half between the September and December quarters. On the data center front, revenue contributions from its first two custom chip design projects are expected to begin in the December quarter (approximately $600 million). The company forecasts data center revenue to reach $5 billion in fiscal 2027 and $15 billion in fiscal 2029. However, initial product gross margins are expected to be notably below the company average, dragging QCT segment gross margin by 150–200 basis points. In light of these factors, Citi lowered its EPS estimates for Qualcomm’s fiscal years 2026–2028 by 3%, 23%, and 19%, respectively, and reduced its price target from $198 to $175—implying a 20x multiple on fiscal 2028 EPS—while maintaining a “Neutral” rating.