Apple’s chip threat is a significant headwind to Qualcomm: analysts

Apple’s (NASDAQ:AAPL) plans to develop its first in-house 5G modem could be Qualcomm’s (NASDAQ:QCOM) biggest risk, Seeking Alpha analysts argued this week after the semiconductor company underperformed on Wall Street even despite posting better-than-expected Q4 FY24 results.

Qualcomm (NASDAQ:QCOM), the industry leader in linking phones with cellular networks, currently builds modem chips that Apple (NASDAQ:AAPL) uses in its iPhones. The Cupertino-based tech giant’s move to develop its own modem can create a revenue impact worth more than a billion dollars, SA analyst Lighting Rock Research wrote this week.

“From FY26 to FY28, Apple will gradually replace Qualcomm’s 5G modem with an in-house product,” the analyst pointed out. Lighting Rock Research estimates an annual revenue hit worth over $1B for Qualcomm (QCOM) if AAPL can replace 15% of chips yearly.

“I remain concerned about Apple’s potential transition to in-house 5G modems, which could pose significant growth challenges for Qualcomm,” the analyst added, reiterating the sell rating on QCOM. “The stock price has not fully incorporated the potential risk of losing Apple as a customer, in my view.”

According to SA Investing Group leader James Foord, Apple’s move to develop in-house chips is the primary reason for Qualcomm’s (QCOM) undervaluation. The Cristiano Amon-led company now trades at roughly 15x in terms of its forward earnings compared to the sector median of approximately 25x.

“The overhang from the Apple revenues is still putting a dampener on the valuation,” Foord wrote, downgrading the stock to sell. However, the analyst sees Qualcomm’s (QCOM) diversification strategy as a bright spot that the market has yet to appreciate fully.

“The Apple discount seems overdone, and plenty of investors seem to be overlooking that QCOM does have other clients and some other meaningful avenues to increase revenues, such as the Automotive segment,” he wrote.