We Are Upgrading This Holding to a One Rating

* We are upgrading Qualcomm to a One rating, and reiterating our price target.

* Hon Hai’s results and comments support the ramping outlook for AI and smartphones.

* Canalys reaffirms its AI-capable PC forecast, another positive for Qualcomm.

* At Google’s Made By event, AI was the big takeaway..

We are upgrading shares of Qualcomm QCOM to a One rating from Two, while reiterating our $255 price target. The decision behind this move reflects today’s Q2 2024 earnings report and guidance from Apple AAPL manufacturing partner Hon Hai Precision HNHPF, Taiwan Semi’s TSM barn burner July sales report, and the more than 20% pullback in QCOM shares over the last two months. We continue to see Qualcomm benefiting from the rebounding smartphone and PC markets and the AI on-device upgrade cycle.

What Did Hon Hai Precision Have to Say?

For its June quarter, Hon Hai (also known as Foxconn) revenue rose 19% year over year (17% compared to the March quarter). While a bit backward-facing given the number of earnings reports we’ve had recently, we also learned the company’s July revenue rose 22% year over year (up 16.6% compared to June). That supports management's comment that it sees “significant” growth during the current quarter due to strong demand for AI servers and strong sequential growth from smart consumer electronics, where new product preparations are underway. That is the latest data point that confirms the seasonal ramp for Apple’s next iteration of iPhone is tracking, which is also positive for QCOM but also shares of Universal Display OLED.

Hon Hai’s Q2 2024 revenue was also aided by AI demand, which jumped more than 60% compared to the June quarter and is expected to account for 40% of Hon Hai’s revenue this year. We see this as a nice confirmation point for our positions in Nvidia NVDA and Marvell MRVL.

Canalys Weighs in on AI PC Demand

Research firm Canalys said 8.8 million AI-capable PC units were shipped in Q2 2024, accounting for 14% of all PC units, and up from 7% in Q1 2024. That ramp makes sense given the timing of product launches from Dell DELL, HP HPQ and others and we should see that accelerate in H2 2024 as more models hit shelves.

Alongside these latest figures, Canalys reiterated its forecast for 44 million AI-capable units, rising to 103 million next year.

Google’s Made By Event

The AI-capable PC market is a new one for Qualcomm, and paired with a similar upgrade cycle for the smartphone market keeps us bullish on the shares. Adding support for that was yesterday’s Made By event from Google GOOGL, which did unveil new Pixel smartphone models, but, as we suspected, was skewed toward AI features. During the event, the company showcased Gemini Live, Pixel Screenshots, and Pixel Studio.

Included in those announcements was the new Pixel 9 Pro Fold, which contains an 8” folding display as well as its 6.3” cover display. This is one of the largest displays in smartphone land, and it speaks to the steady number of foldable products coming to market. Many are waiting for Apple to make that move, which is now expected to be a 2025-2026 event, and it’s one of the several reasons we remain long-term bullish on OLED shares. We have a One rating on OLED and our price target continues to be $250.

More Pro Portfolio:

At the time of publication, TheStreet Pro Portfolio was long QCOM, OLED, AAPL, MRVL, NVDA and GOOGL.