US Semiconductor: Analysis of the Possibility of Qualcomm (QCOM) Acquiring Tenstorrent

Qualcomm (QCOM): A warrant for Tenstorrent? On Monday after market close, The Information reported that Qualcomm has beenin talks to acquire Tenstorrent,an AI chip and IP startup, for a potential purchase pricein the range of $8B-$10B, a significant premium from their last valuation (most recentlyspeculated in the press at ~$3.2B at the end of last year). We note that the company had Stacy A. Rasgon, Ph.D.+1 213 559 5917stacy.rasgon@bernsteinsg.com Arpad von Nemes+1 917 344 8461arpad.vonnemes@bernsteinsg.com Tenstorrent designs high-performance processors, servers, and software forartificial intelligence and machine learning workloads built on the open-sourceRISC-V architecture.Products range from standalone PCIe cards to small AI workstationsaimed at developers to Enterprise-grade Systems/Clusters (Exhibit 1,Exhibit 2) as wellas RISC-V-based IP, software, and low-level AI hardware SDKs, with offerings optimized for Alrick Shaw+1 917 344 8454alrick.shaw@bernsteinsg.com Tenstorrent is headed by Jim Keller,an industry legend who was the driving force behindmany important designs including AMD’s Zen architecture and AAPL’s A-series iPhonechips. He joined Tenstorrent in late 2020/early 2021 following an abrupt exit from Intel,originally as its CTO and President, and became CEO in 2023 when he swapped roles with There has been a run on AI startups focusing on low-latency inference lately, hencewe can certainly see how Tenstorrent might fit into Qualcomm’s portfolio,addingto current offerings that include CPUs, ASICs, server racks, and IP (Alphawave serdes etc).That being said, it should be noted that their track record with silicon acquisitions has beensomewhat mixed (at least when it comes to retention; for instance the Nuvia deal did serveto boost the company’s processor offerings but virtually the entire team has now left oncethey reached the end of their lock-up). To that end, while obtaining Jim Keller on the payroll Could it be a further Arm hedge?We know that while Qualcomm remains a heavy user ofArm’s technology the relationship has frayed a bit in recent years, culminating with a lawsuitaround their prior Nuvia acquisition (a lawsuit that Qualcomm decidedly won in late 2024).Tenstorrent however does not use Arm but rather RISC-V. Qualcomm is no stranger to theopen-source architecture, having developed on it for years and even acquiring Ventana We make no changes to our model at this time, and await any further newsflow thatmight be forthcoming into the company’s analyst day in a couple of weeks. We rate INVESTMENT IMPLICATIONS QCOM (Market-Perform, $140.00):Memory headwinds appear likely to pressure smartphone builds and numbers appearhigh; we shall see if datacenter dream is enough to attract buyers. DISCLOSURE APPENDIX I. REQUIRED DISCLOSURES References to "Bernstein" or the “Firm” in these disclosures relate to the following entities: Bernstein Institutional Services LLC(April 1, 2024 onwards), Sanford C. Bernstein & Co., LLC (pre April 1, 2024), Bernstein Autonomous LLP, BSG France S.A. (April 1,2024 onwards), Sanford C. Bernstein (Hong Kong) Limited盛博香港有限公司,Sanford C. Bernstein (Canada) Limited, SanfordC. Bernstein (India) Private Limited (SEBI registration no. INH000006378), Sanford C. Bernstein (Singapore) Private Limited,Sanford C. Bernstein Japan KK(サンフォード・C・バーンスタイン株式会社)and analysts employed by Société GénéraleAfrica Technologies & Services to produce Bernstein research under a Global Services Agreement in place between Bernstein Bernstein is part of a joint venture between Société Générale (SG) and AllianceBernstein, L.P. (AB). Unless specifically notedotherwise, for purposes of these disclosures, references to Bernstein’s “affiliates” relate to both SG and AB and their respectiveaffiliates. VALUATION METHODOLOGY Qualcomm Inc We value QCOM by setting a target multiple of ~14x applied to our FY2027 diluted EPS estimate (~$9.77) and set our price targetat $140. RISKS Qualcomm Inc Downside risks to our price target on QCOM include further customer lawsuits, disputes, or revolts over licensing practices, furtherissues monetizing China, "leakage" of IP issues, 5G penetration and ramp slower than we model resulting in lower device or chipsetunit growth, or device and/or chipset ASPs declining faster than we model. Upside risks include better-than-expected smartphone RATINGS DEFINITIONS, BENCHMARKS AND DISTRIBUTION EQUITY RATINGS DEFINITIONS Bernstein brand The Bernstein brand rates stocks based on forecasts of relative performance for the next 12 months versus the S&P 500 forstocks listed on the U.S. and Canadian exchanges, versus the Bloomberg Europe Developed Markets Large and Mid Cap PriceReturn Index EUR (EDME) for stocks listed on the European exchanges and emerging markets exchanges outside of the AsiaPacific region, versus the Bloomberg Japan Large and Mid Cap Price Return Index USD (JPL) for stocks listed on the Japanese The Bernstein brand has three categories of r