J.P. Morgan downgrades Mobileye Global ahead of Q2 earnings: Will the stock keep falling?

Mobileye Global Inc. (NASDAQ: MBLY) faces a pivotal moment as it heads into its Q2 earnings report, set for tomorrow.

Already under pressure with a 54% drop in its stock value year-to-date, the company’s challenges were compounded today as J.P. Morgan downgraded the stock.

Citing concerns about the SuperVision product and inventory issues, analyst Samik Chatterjee lowered Mobileye’s rating from Overweight to Neutral and reduced the price target from $38 to $24.

This downgrade arrives at a time when the automotive sector grapples with a deteriorating volume outlook for electric vehicles, further impacted by the weak sales trends in ICE and hybrids.

High vehicle prices and rising interest rates are straining consumer demand, factors that Chatterjee believes could dampen the near-term outlook for Mobileye’s Advanced Driver Assistance Systems (ADAS) business.

Additionally, an inventory adjustment noted among semiconductor companies directly exposed to the auto sector suggests further risk to Mobileye’s operations.

Earlier this year, in April, Morgan Stanley also downgraded Mobileye due to a slowdown in EV adoption that surprised the market.

Analyst Adam Jonas noted that while Mobileye’s leadership in computer vision creates value, the unexpected slowdown presents a significant barrier to growth.

Jonas adjusted Mobileye’s rating to Underweight from Equal Weight and trimmed the price target slightly to $25 from $26.

This move reflects concerns over Mobileye’s valuation, which at 36 times FY26 PE, appeared fully valued amid downward pressures on consensus forecasts.

Q2 earnings preview

Looking ahead to Q2 earnings, analysts anticipate a challenging report with expectations set for a GAAP loss of $0.14 per share on revenue of $423.55 million.

This forecast contrasts sharply with last year’s Q2 performance, which featured a smaller loss of $0.03 per share on higher revenue of $454 million.

Despite these headwinds, Mobileye continues to push the envelope in the ADAS and autonomous driving arena.

The company’s REM (Road Experience Management) and RSS (Responsibility Sensitive Safety) systems underscore its commitment to enhancing safety and efficiency in autonomous navigation.

Furthermore, Mobileye’s strategy includes True Redundancy, ensuring that its environmental sensing technologies remain robust against potential system failures.

Financially, Mobileye’s journey has been marked by volatility. The company’s revenue in Q1 2024 sharply declined by 48% year-over-year, and the gross margin plummeted from 45.2% to 22.6%, reflecting significant inventory and pricing challenges.

As we approach the technical analysis segment of our discussion, it’s crucial to consider how these fundamental aspects, might influence Mobileye’s stock trajectory.

With the charts ready to tell more of the story, we’ll delve into what the numbers and trends suggest about Mobileye’s future in the stock market.

Both bulls and bears must remain cautious

Following its IPO in late 2022, Mobileye’s stock saw a rapid ascent and then remained largely rangebound within a $32-$48 range for a year.

However, after the company reported weak guidance for Q4 and 2023, the stock saw a massive drop at the start of 2024. Since then, it has remained in a downtrend.

Source: TradingView

Although the stock continues to display weakness across timeframes right now, bears must remain on guard because it has fallen substantially from $33 levels to $20 in just over a month and a bounce back seems imminent.

Whether that bounce back will cause it to gain strength and climb higher or will be used as a shorting opportunity remains to be seen.

Similarly, investors who are bullish on the stock must also refrain from taking a long position unless the stock shows some stability at current levels.

Even then, they should start with a small position and add to it only if the stock climbs above its medium-term resistance at $33.2.

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