Qualcomm And AMD Navigate Mixed Fortunes

To satisfy the processing needs of AI, chip producers have seen increasing demand. But the ongoing trade tensions with China could derail some of the gains.

AI is No Replacement for Reality

The expected transformative nature of AI has been fuelling the disproportionately tech-driven share rally this year. But there have been signs that the recent growth might not be sustainable. TSMC warned that the drive might be a fad and not offsetting generalised market weakness. On the other hand, Intel sales outperformed thanks to increased demand for chips to supply AI. The disruptive effect of AI seems to have an uneven impact on the market, with some companies in a better position to capitalise.

Qualcomm is expected to report earnings of $1.81 on Tuesday, down from the $2.96 reported last year. Sales are also expected to be lower at $8.5B, well below the $10.9B reported last year. The drop is being attributed to a similar phenomenon seen in rivals, such as Silicon Motion, which saw its shares increase following earnings as it reported customers were selling down inventories. The bulk of Qualcomm's income comes from headsets, and smartphone sales have been weak this year. With over 60% of the company's sales coming from China, the recent economic underperformance in the Asian Giant has been a particularly large headwind.

More Processing Power

Meta's pivot towards AI and away from the Metaverse in partnership with Qualcomm could be a bright spark. Meta insists that it is still committed to the Metaverse, which implies investments in headsets. Rival Apple is looking to push forward with enhanced reality, which might boost the popularity of the technology that used Qualcomm processors in the future. In the meantime, investors are likely to be keenly focused on what Qualcomm executives say about the future of customer inventories, the potential for new sales, and how the company plans to take advantage of the demand for processing power to supply AI.

Another company that benefited from Intel's earrings is competitor AMD, which supplies some of the chips for AI processing. AMD will report after the close on Monday, with earnings expected to be essentially flat at $0.57 and almost unchanged revenue at $5.3B. If the headset market has been impacted, the PC market has performed even worse over the last few quarters. While demand for processing power for AI-based data centres is expected to rise, it likely won't be enough to offset falling demand for PCs. AMD also suffers from the lingering effects of supply chain disruptions, as customers pre-ordered larger inventory during the shortage period but now have to work down those supplies.

QUALCOMM Bounces After Double Bottom

Qualcomm has formed a double bottom marginally above the $100 barrier, targeting at least the peak of $140 where a sideways market could pan out. Soaring past the threshold, prices might accelerate towards $156 and $168. Conversely, losing $113 will raise the chance of additional declines, with triple digits under risk of surrendering exposing the net support at $90.

Source: SpreadEx / QUALCOMM INC

Key Takeaways

The ongoing trade tensions with China are causing potential setbacks for chip producers in meeting the increasing demand for processing power needed for AI. While some companies, like Intel, have seen increased sales due to AI demand, others, like Qualcomm and AMD, have experienced declines. Qualcomm's earnings and sales are expected to be lower, primarily due to weak smartphone sales in China. However, Qualcomm's partnership with Meta in AI could provide a positive outlook. AMD, which also supplies chips for AI processing, is expecting flat earnings and stagnant revenue due to the impact of the declining PC market and lingering supply chain disruptions.