Investing.com -- Bernstein has downgraded Qualcomm (NASDAQ: QCOM) to Market-Perform from Outperform, lowering its price target to $140 from $175, as rising memory costs and weakening smartphone demand cloud the outlook for the chipmaker.

Analyst Stacy Rasgon said memory price dynamics are becoming a major headwind, with sharp increases in mobile DRAM and NAND costs expected to weigh on smartphone builds.

"The memory headwinds building in the industry now appear to have a likely deleterious effect on overall smartphone shipments (with potential for double-digit unit declines this year)," he said in a note, as higher component costs force vendors to either raise prices, reduce specifications, or absorb margin pressure.

Rasgon also believes that Wall Street expectations remain too optimistic. Despite Qualcomm already guiding lower earlier this year, he argues that “numbers (which we already thought looked elevated) now appear much too high,” pointing to further downside risk from weaker smartphone volumes and the anticipated step-down in Apple-related revenues toward year-end.

The Apple transition remains a central concern. The analyst said the expected roll-off of Apple modem volumes is not fully reflected in market estimates, with the shift set to accelerate into year-end.

He warned that Apple’s share of Qualcomm’s modem business could fall sharply, from around 80% to roughly 20%, creating a significant revenue headwind that consensus still appears to underestimate.

Rasgon also flagged that Apple-related licensing contributes roughly $1.50 of EPS, with the current agreement set to expire in April 2027. While he expects Qualcomm to ultimately prevail in any dispute, the analyst warned that the process could be volatile and weigh on sentiment, as seen in past instances.

At the same time, potential positive catalysts are seen as insufficient to offset the broader pressures. Qualcomm has announced a $20 billion buyback and may host a datacenter-focused event, but Rasgon said these are unlikely to shift sentiment, particularly given stronger opportunities elsewhere in semiconductors.

“We feel a bit bad for the company; they appear to be doing everything right, but are living in a bad neighborhood at the moment,” he wrote.

"We suspect things get worse before tthey get better, and while the stock remains extremely cheap even on our numbers, that becomes less of a support when one can buy actual AI winners for under 15x on “realistic” estimates," Rasgon added.

"If the neighborhood shows signs of gentrification we will be happy to revisit it."