Qualcomm (NASDAQ:QCOM) has been one of the most unpredictable tech stocks of 2019. Its products remain in high demand and despite a global smartphone market that’s cooling, QCOM is at the forefront of the race to 5G. However, there are many outside factors weighing on QCOM stock that have led to wild swings — QCOM dropped below the $50 level in January and spiked as high as $89.29 in May.
That being said, the overall trend for QCOM in 2019 has been up, with a gain of 32% so far on the year. What Qualcomm stock lost on Tuesday, it regained yesterday, leaving the shares down 5% in the last two week. Do we have a buying opportunity here?
Qualcomm is in a position to take full advantage of two big factors over the next several years.
First, after being replaced by Intel (NASDAQ:INTC) for the past several years as the modem supplier for Apple’s (NASDAQ:AAPL) iPhone, Qualcomm is back. The outcome on this front couldn’t have been much better from Qualcomm’s perspective. Apple settled its legal action against Qualcomm, agreed to pay the $5 billion or so in royalties it had withheld, signed a six-year deal to make Qualcomm its sole iPhone modem provider, and Intel announced it was walking away from its 5G modem business.
QCOM stock rocketed 23% in a single day in April on the back of these announcements. One of those wild swings…
In addition to regaining Apple’s business, Qualcomm is also in a great position to take full advantage of the so-called 5G revolution. With 5G networks that deliver dramatically faster cellular performance beginning to roll out, the technology is expected to kick off a wave of consumer smartphone upgrades over the next several years. As a result, IDC is predicting a return to growth for the smartphone market in 2020 after several years of declining sales.
Even with Intel out of the picture, Qualcomm still has 5G rivals in Samsung, Huawei and Mediatek. However QCOM is expected to be the supplier of choice for most smartphones.
Like many tech stocks, QCOM has been affected all year by the trade war between Washington and Beijing. With China and Chinese companies responsible for 67% of its 2018 revenue, Qualcomm has a higher exposure to the risks of the trade war and tariffs than most companies. That exposure has weighed on QCOM stock in 2019, and it could hurt it further if the volatile situation escalates.
Even worse — at least from a long-term perspective — is QCOM’s antitrust problem. In another of those 2019 wild swings, a May court ruling in favor of the FTC’s antitrust case against the company saw Qualcomm stock post its largest single-day loss in over two years. And that was just a month after the huge boost from the Apple settlement!
Qualcomm has been appealing the ruling — which would see its royalties for smartphone modem patents slashed to pennies — but if it eventually loses (and this could drag on for another year or more), the impact on QCOM revenue is going to hurt.
As I mentioned in the intro to this post, trying to predict where QCOM is going has been extremely difficult. There are just so many balls in the air. The overall mood about Qualcomm is positive — 5G rollout has the potential to give smartphone sales a real shot in the arm, and winning back the iPhone contract is big — but that antitrust ruling and the trade war both have the potential to play spoiler. Analysts are just about split on QCOM stock, with 14 of 26 rating it a hold, 12 recommending investors buy. They have $80.41 as an average 12-month target price.
Personally, I’d side with the slim majority on this one and stay on the sidelines. Even though 2019 has seen solid growth overall, there doesn’t seem to be a ton of upside on QCOM (even after yesterday’s slide) to making buying Qualcomm stock worth the risk.
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