After years of frustrations and extreme swings in market value, Qualcomm (NASDAQ:QCOM) is suddenly hip again. Actually, that’s an understatement. After shedding nearly 12% this January, Qualcomm stock appeared doomed for another disastrous year. However, an unexpected twist in the semiconductor firm’s legal battle with Apple (NASDAQ:AAPL) changed everything.
As you know, Qualcomm and Apple have been going at it over a royalties dispute. The former levers vital intellectual property regarding next-generation cellular networks. To use these patents, smartphone manufacturers and other equipment makers must pay Qualcomm a royalty fee. Naturally, such a lucrative business boosts the case for QCOM stock.
However, Cupertino fired back, claiming that this practice was both unfair and anti-competitive. Apple CEO Tim Cook once quipped that “doing business with Qualcomm is like ‘buying a sofa’ and paying ‘a different price depending upon the house that it goes into.’”
As I mentioned last month, it’s a tricky issue for Qualcomm stock because neither side has much of a moral high ground. In the past, QCOM enjoyed friendlier terms with Apple, which effectively crippled competition in the smartphone sector. At the same time, a federal jury did find that Apple violated three Qualcomm patents.
Therefore, everyone, including those who were speculatively bullish on QCOM stock like I was, thought the same thing: inevitably, we’re moving toward bitter appeals and countersuits, and that neither side will give an inch.
But Apple proved me wrong. Last week, their management threw in the towel, and reached a settlement. Moving forward, they “signed a six-year deal that will see QCOM modems back in Apple iPhones.”
Obviously, the shock announcement and concession skyrocketed Qualcomm stock. Should investors jump onboard this suddenly hot stock?
Possibly Unassailable Fundamentals Drive Qualcomm Stock
Our own Brad Moon reported the official reason why AAPL conceded: with the 5G rollout moving into higher gear, Apple couldn’t afford to take a step down in technology.
I mentioned this as well last month. Qualcomm’s Snapdragon X50 modem is lightyears ahead of the competition. Additionally, it enjoys the all-too-critical first-to-market advantage.
Sure, Apple made overtures to Intel (NASDAQ:INTC). Unfortunately, that relationship quickly soured as Intel’s offerings didn’t meet firepower standards. Plus, iPhone sales started hurting noticeably under the “peak smartphone” cycle. Simply put, AAPL had to swallow their pride.
Of course, the Snapdragon modem represents a solid reason to take a shot on QCOM stock. However, the bull case goes much further than any single product. Instead, I believe the reason why shares have consistently hit fresh plateaus recently is 5G’s piggyback effect.
Most lay observers recognize 5G technology for its ultra-high speed internet capacity. But that’s just one component of this innovation. From a longer-term perspective, 5G actualizes other industries that previously incurred infrastructure-related difficulties. This force multiplier is why Qualcomm stock looks so compelling, even at these nosebleed levels.
For instance, with 5G wireless speeds, the concept of automated driving is much more realistic. Current systems incorporate artificial intelligence programs that run complex algorithms that adjusts to multiple variables. In the not-too-distant future, our cars will communicate with information networks that provide data on traffic conditions and other metrics, resulting in higher transportation efficiencies.
That’s just not possible with current-gen technologies. And once companies realize that it’s Qualcomm turning science fiction into reality, this will further lift QCOM stock.
No One Does It like QCOM
It’s worth reiterating that nobody else is replicating what Qualcomm is doing. Indeed, their dominance is so overbearing that Apple essentially submitted to what they viewed as an unfavorable business relationship.
Everyone can tell you that it’s hard to admit when you’re wrong. It’s even harder to admit it when your conflict is in public. But when you genuinely believe you’re in the right, but concede anyways? That’s an extraordinarily bitter pill to swallow, so much so that some might not swallow it at all. Yet here we are.
But is that enough to convince investors who missed the train to reengage with Qualcomm stock? This is a doozy of a question. Since mid-April, shares have jumped nearly 50%. No matter how great the company is, you’ve got to expect a correction coming up shortly.
When it does, though, I wouldn’t get too cute with QCOM stock. True, it’s no longer the great deal that it was just a few weeks ago. At the same time, Qualcomm has a huge head start in 5G which will take time to reel in, if ever.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
