I’ve been a skeptic regarding Qualcomm (NASDAQ:QCOM) for some time now. QCOM stock is cheap, admittedly. But growth has been weak and, despite that valuation, threats to the company’s business model create significant risk for Qualcomm stock.

Just a month ago, I argued that the market had it right and that ~$55 was a reasonable price for QCOM stock. Broadly speaking, I still believe that to be the case.

That said, it’s been a good month for Qualcomm. The company clearly is making headway in its long-running legal battle with Apple (NASDAQ:AAPL). QCOM stock has held up — which, in this market, counts as a win. Most chip stocks are down over the last month. Among large-caps, only Qualcomm stock, Intel (NASDAQ:INTC) and, somewhat ironically, Broadcom (NASDAQ:AVGO) have kept their value intact or up over that stretch.

There’s a base here for at least a short-term move higher. The longer-term questions, however, remain.

The Bull Case for Qualcomm Stock

The outline of a bull case for QCOM is becoming apparent. Valuation is reasonable, at a little over 12 times forward earnings. The dividend yields 4.4%. Growth has been weak of late, due to the dispute with Apple and sharply slowed smartphone unit growth. But the transition to 5G provides a potential catalyst — and, now, so does a win against Apple.

Simply getting back royalties from Apple and its supplier could bring in as much as $7 billion in cash. That’s over 10% of the current Qualcomm market capitalization. It’s likely that some portion of those royalties are priced in, but a settlement with Apple and the renewal of those payments could boost QCOM stock by a few percentage points.

None of the potential here looks priced in. If Qualcomm continues on its current low-growth path, the stock probably moves sideways while paying a 4%+ dividend every year. But a win against Apple or a growth acceleration from 5G could fuel a turnaround narrative — and lead QCOM stock sharply higher. Bear in mind that Broadcom — historically a smart and successful acquirer — was willing to pay $82 per share for Qualcomm earlier this year. That’s nearly 50% above the current price of Qualcomm stock.

The Case Against QCOM Stock

Near the lows, there’s a case that even disappointing scenarios are at least somewhat priced in. But this can get worse for Qualcomm. The company continues to lose market share, most notably being displaced by Intel as the cellular modem supplier to the iPhone. Apple isn’t Qualcomm’s only legal issue: antitrust authorities around the world have taken aim at the company.

Indeed, the point that Apple is trying to make is that Qualcomm unfairly — and potentially illegally — is bundling its chips and its patents. The United States FTC (Federal Trade Commission) has taken Apple’s side in the past. It’s still not clear — however the Apple/Qualcomm battle is resolved — that Qualcomm can maintain its current business model.

And that business model has struggled of late. In fiscal 2018 (ending September), adjusted earnings per share declined for the fourth consecutive year. Fiscal 2014 non-GAAP was $5.27; the figure was 30% lower last year. Obviously, the Apple dispute has impacted earnings in the past few quarters, but the business was headed in the wrong direction before that.

For Q1 fiscal 2019, QCOM is guiding for a return to growth, projecting adjusted EPS of $1.05-$1.15, 7-17% higher than the year before. But that projection includes a huge one-time tax benefit of $500 million-plus — over 30 cents per share. That aside, Qualcomm’s business still is declining. And a multiple of 12 doesn’t incorporate those declines — or the regulatory risk facing the company in 2019 and beyond.

Can Investors Do Better?

To be clear, I’m not necessarily arguing that QCOM is a short — or that it’s going to decline further. Again, $55 seems like a reasonable, but hardly compelling, price.

And, in this market, investors looking to go long on a chip play seem to have more compelling options. Nvidia (NASDAQ:NVDA) has dropped 54% (though I’ve argued that dip isn’t worth buying). Advanced Micro Devices (NASDAQ:AMD) is down by almost half. Smaller chip plays (including those with smartphone exposure) and equipment manufacturers like Lam Research (NASDAQ:LRCX) have fallen sharply as well.

It seems wiser to take on the risk in the sector in those fallen angels rather than QCOM — even near lows of its own. And those companies don’t have the regulatory risk that Qualcomm does.

In that context, the bull case here is interesting — but not interesting enough. Stepping into the market-wide decline (even after Wednesday’s big rally) simply requires a better risk/reward than QCOM stock seems to offer.

As of this writing, Vince Martin has no positions in any securities mentioned.