Qualcomm’s Analysts Are Throwing in the Towel—Time to Be Brave?

Key Points

• Qualcomm has fallen from early-January levels above $180 to around $140, erasing two years of gains and returning to 2020 levels.
• A wave of downgrades and reduced price targets suggests confidence is cracking across Wall Street.
• But with the stock’s RSI flashing extremely oversold conditions and support forming near $135, contrarians are beginning to circle.

Despite trading above $180 in the first week of January, shares of tech titan Qualcomm Inc NASDAQ: QCOM now sit just above $140. The stock has effectively round-tripped two years of progress and is back to the same price it was at in 2020. For long-term holders, it’s been a frustrating and bruising ride to say the least. 

Making it all the worse is that the narrative seems to have grown only weaker in recent weeks. Less-than-ideal guidance in the company’s Q1 numbers earlier this month added fuel to the fire, reinforcing concerns about the smartphone cycle and Qualcomm’s ability to generate meaningful growth beyond it. Investors who have been burned before by previous false starts appear to have finally lost patience, and it’s hard to blame them. 

What will make it even more painful for Qualcomm right now, however, is that analysts who once largely ignored the name are now beginning to rate it poorly and urge caution.

Still, as we’ve recently highlighted, this is also the kind of setup that can attract contrarians, and a buy-the-dip opportunity could be taking shape. Let’s jump into it and take a closer look. 

The Bears Are Growing Louder

For starters, the shift in tone from the sell side has been noticeable. The team at Daiwa Securities Group cut its rating on Qualcomm from Outperform to Neutral last week, while Morgan Stanley initiated coverage with an Underweight rating earlier this month. Wells Fargo has also maintained a defensive stance, reinforcing the idea that investors should be cautious. 

Some of these reduced price targets now extend down to the low $130s, implying that some analysts still see room for further downside from current levels.

The bear argument is straightforward. Qualcomm may look underpriced and inexpensive on the surface, but inexpensive stocks can remain that way for extended periods if growth underwhelms.

The more cautious voices argue that the stock is already priced for muted growth, with little expectation for any meaningful expansion. However, if the smartphone cycle, to which Qualcomm is painfully exposed, remains subdued or earnings disappoint again, nothing is stopping the stock from continuing to be sold. 

Even so, it is notable that some of the analyst community actually remain optimistic. As we’ll see below, a handful of firms have been rating the stock as a Buy or equivalent in recent weeks, underscoring just how divided sentiment has become.

Price Action Suggests a Low May Be Forming

While analyst downgrades may grab headlines, a stock’s price action and technical setup can offer a better pulse on the immediate story. To that end, Qualcomm’s relative strength index (RSI) is currently flashing extremely oversold conditions, signaling that selling pressure has reached rare levels. Historically, these kinds of readings have not persisted for long.

Importantly, the stock has found support following the sharp post-earnings drop in early February. After weeks of red-on-red sessions, the past week has begun to see some consistent green days being strung together. That’s a subtle shift in tone which may signal the bears are beginning to run out of steam.

The $135 level, which the bears have been unable to take the stock below, now looks like a key line in the sand. If that area continues to act as support, the technical setup could quickly flip from breakdown to consolidation. Add in the fact that the stock is extremely oversold, and it mightn’t take much to trigger a recovery rally.

The Contrarian Case Is Worth Exploring

For those who want to lean into the opportunity here, it’s important to note that not all analysts have been throwing in the towel. DZ Bank upgraded the stock to a Strong Buy last week, while Argus reiterated its Buy rating earlier this month, and Piper Sandler maintained its Overweight stance, with these bullish price targets reaching $200.

From current levels, that implies a potential upside of around 40%, which, when paired with oversold technicals and stabilising price action, is hard to ignore. Contrarian investors don’t need Qualcomm to become a market darling overnight; they just need the stock to stop going down. Looking at the chart over the past week, they’re starting to get their wish.

Weighing the Opportunity

There’s no denying that Qualcomm is likely to remain the frustrating stock it’s been, for at least a little while. Cyclical headwinds and a chronic inability to maintain upward momentum have repeatedly undermined confidence. However, frustration can often lead to opportunity, particularly when sentiment becomes this negative.

If the stock can hold above $135 and continue to stabilize through the rest of the week, a cautiously bullish stance begins to make sense. If that level fails, the bears may yet have another leg down in store.