Bernstein raises Qualcomm target price to $235, but why is the rating still unchanged?

TL;DR

• Bernstein has raised Qualcomm's price target from $140 to $235, but maintains a Market Perform rating.
• Qualcomm's FY2029 target focuses on data centers, automotive, and IoT, aiming for approximately $40 billion in non-handset revenue.
• Declining handset business, rising OPEX, and uncertainty over data center gross margins remain core constraints for the unchanged rating.

Price Target Surges, but Rating Doesn't Follow

After Qualcomm's Investor Day in New York, the company presented larger long-term growth targets to the market. Bernstein subsequently raised Qualcomm's price target from $140 to $235, but maintained a Market Perform rating.

The price target increase indicates that Bernstein acknowledges Qualcomm's long-term story is expanding. The company is no longer positioning itself solely as a mobile chip supplier but is attempting to enter broader computing markets such as AI data centers, automotive, IoT, and personal AI devices. According to Qualcomm's official targets, by FY2029, the company's non-handset revenue will reach approximately $40 billion, data center revenue will exceed $15 billion, and Non-GAAP EPS will surpass $18.

However, the unchanged rating also suggests that the sell-side does not view this narrative as sufficiently certain. The real constraint lies in the timing gap: the realization of data center and automotive businesses is further out, while the decline in handset business, loss of Apple revenue, increased OPEX, and gross margin pressure will impact financial results sooner.

This explains why the $235 price target does not equate to a "buy" signal. Bernstein acknowledges that Qualcomm's long-term valuation ceiling has been raised, but with current stock prices already reflecting some optimistic expectations, the risk-reward profile does not yet clearly favor buying.

New Narrative: Shifting from Mobile Cycles to AI Data Centers

Qualcomm's most important new narrative this time is the data center.

The company's official target shows that data center revenue will exceed $15 billion by FY2029. Compared to the current data center revenue base of approximately $30 million, this means Qualcomm must genuinely enter cloud vendors' AI infrastructure budgets in the coming years, rather than just staying in the mobile chip and edge computing markets.

Qualcomm's disclosed data center roadmap includes custom ASICs, AI inference accelerators, the Dragonfly C1000 CPU, connectivity products, and related software layers. The company also mentioned two unnamed Hyperscaler customers, expecting each to contribute over $1 billion in custom silicon revenue by FY2027.

The Meta partnership is another significant validation point. Qualcomm and Meta announced a multi-generational data center CPU collaboration, with the Dragonfly C1000 CPU planned to begin production in the second half of 2028. However, caution is warranted here: the official statement indicates Qualcomm will be one of the suppliers, but details on volume, capacity, and exclusivity have not been disclosed.

Automotive and IoT form the second growth curve. Qualcomm's official targets show automotive revenue reaching $10 billion and IoT revenue exceeding $14 billion by FY2029. The automotive design-win pipeline has grown from $45 billion 18 months ago to $65 billion, with the company continuing to bet on digital cockpits, assisted driving, and in-vehicle connectivity.

$235 Price Target Bets on 2029, Not Next Year

The core reason for Bernstein's price target increase is not a sudden improvement in Qualcomm's short-term performance, but the valuation model beginning to incorporate larger data center revenue and a more balanced business structure.

According to Bernstein's model, Qualcomm's FY2029 revenue is approximately $64.8 billion, with EPS around $18.12, closely aligning with the company's long-term target of "Non-GAAP EPS exceeding $18." Compared to the past, when the market primarily priced Qualcomm based on mobile cycles, data centers, automotive, and IoT give the company an opportunity to achieve higher valuation multiples.

The $235 price target corresponds to a higher valuation framework. Bernstein uses an average EPS of approximately $11.75 for FY2027/FY2028 and a 20x P/E valuation; the previous $140 target corresponded to a multiple of around 14x. In other words, the key to the price target increase is not a significant upward revision in next year's earnings, but the market's willingness to pay a higher multiple for Qualcomm's AI data center and diversified revenue story.

However, this also harbors disagreements. Bernstein's model assumes a data center business gross margin of about 40%, lower than Qualcomm's current company average. Even if data center revenue scales up, it may not immediately improve overall profitability. The report estimates that as the business structure changes, Qualcomm's overall gross margin may decline from 55.2% in FY2026 to 51.6% in FY2029.

Handset Pressure Comes First, Data Center Realization Awaits

Qualcomm wants to prove its revenue structure is changing through data centers, automotive, and IoT, but the pressure on the handset business has not disappeared.

Sell-side reports and management Q&A indicate that Android handset revenue in FY2027 is expected to be flat or slightly down. Combined with the loss of Apple revenue, total handset device revenue may decrease by $5 billion to $6 billion year-over-year. The handset business remains Qualcomm's largest current revenue source, and this decline will directly impact the profit base for the next two years.

The company's long-term assumptions for Android handsets are also more cautious. From FY2026 to FY2029, the compound annual growth rate for Android handset revenue is expected to be approximately 5%, significantly lower than the high-growth phases in previous cycles. Qualcomm may still maintain an advantage in Android high-end phones, AI smartphones, and RF front-end, but this will hardly fully offset the pressure from Apple's exit and the slowdown in the smartphone industry.

Costs will also face pressure sooner. Qualcomm explicitly stated that FY2027 OPEX will see double-digit growth. To advance data center CPUs, AI accelerators, custom silicon, and the software ecosystem, the company needs to invest in R&D, sales, and customer support ahead of time. Revenue recognition typically lags behind investment, meaning EPS forecasts around FY2027 may actually face downside risk.

This is the key reason for the price target increase but unchanged rating: Qualcomm's long-term story has grown larger, but the profit curve over the next two to three years is not necessarily smoother. Investors need to accept both judgments: FY2029 EPS may be lifted by AI data centers, but earnings pressure around FY2027 may also be more pronounced.

The Disagreement Lies in Whether $15 Billion in Data Center Revenue Can Become Real Profit

Bernstein's report is not simply bearish on Qualcomm; rather, while repricing Qualcomm, it reminds the market not to treat long-term goals as already realized performance.

In a downside scenario, if data center revenue significantly falls short of the $15 billion target and personal AI and computing business growth is also limited, Qualcomm's FY2029 EPS could still reach approximately $15. This indicates that Qualcomm's foundation is not fragile; automotive, IoT, licensing business, and cost control can still support a certain level of profitability.

But the gap between $15 and $18+ EPS has a significant impact on valuation. If the market has already priced Qualcomm based on more optimistic data center revenue and higher valuation multiples, the company must prove three things: cloud vendor customers can ramp up as planned; data center gross margins will not persistently drag down overall profitability; and the decline in the handset business will not excessively depress EPS before new businesses materialize.

Therefore, the $235 price target is not a conclusion that "Qualcomm's AI transformation has succeeded," but rather a new price that incorporates the long-term diversification prospects into the valuation. Qualcomm's story is indeed larger than before and more resembles a chip platform company spanning mobile, automotive, IoT, and AI data centers.

However, the Market Perform rating serves as a reminder that until the headwinds in handsets ease, data center revenue materializes, and gross margins are proven, the market still has reason not to rush into viewing Qualcomm as a definitive AI winner. The real test ahead is not whether Qualcomm can articulate a $15 billion data center target, but whether that target can be converted into revenue on time and ultimately into sufficiently good profits.