In 2019, the shares of Qualcomm (NASDAQ:QCOM) have acted like a wild cannabis stock or a newly minted IPO. In the first month of the year, QCOM stock fell even though the overall markets were climbing. Then Qualcomm stock got stuck in a tight range until April, when it surged. But soon thereafter, Qualcomm stock fall hard.
The gyrations of QCOM stock have been stomach-churning, especially since QCOM is a mature company that has been around since 1985 and has a market cap of $88 billion. Then again, despite all the volatility, QCOM stock is still up an impressive 31% this year. That’s actually better than many other chip stocks like Intel (NASDAQ:INTC), Nvidia (NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO).
One of the big keys behind the rally of QCOM stock was QCOM’s recent legal settlement with Apple (NASDAQ:AAPL). Under the deal, QCOM will get at least $4.5 billion, and that does not include potential royalties, which are likely to be substantial.
The Risks Faced by QCOM Stock
QCOM still faces considerable headwinds and issues. One is the trade war between the U.S. and China. There’s no doubt that the conflict is wreaking havoc on the semiconductor supply chain, which is fairly delicate. Overall uncertainty sparked by the conflict is causing customers to put off their purchases.
Then there is America’s hardball actions against Chinese mega tech operator Huawei. The company is a huge buyer of semiconductors from U.S. companies. Consider that AVGO recently announced that its revenues would fall $2 billion because of the impact of the American sanctions.
But there is something else:; QCOM recently was hit by a major setback in the antitrust case brought against it by the Federal Trade Commission (FTC). U.S. District Judge Lucy Koh ruled in favor of the agency, saying that the chip maker had used its powerful market position to charge excessive fees.
Of course, QCOM appealed the decision, and the outcome will likely take time because the case has to wind through the court system. But the case will remain an overhang on QCOM stock price. If QCOM ultimately loses, then its core licensing business would come under tremendous pressure as its licensing customers will look to renegotiate their deals.
The Bottom Line on QCOM Stock
I think the company’s 5G opportunity will be a catalyst for QCOM stock., as 5G rapidly proliferates over the next couple of years.
Yet some may be overestimating the extent to which QCOM will grow in the wake of this catalyst. InvestorPlace columnist Vince Martin wrote: “ (5G is) not necessarily an organic opportunity: 5G sales at least to some extent will cannibalize 4G units.”
It’s also not clear how quickly 5G technology will b adopted. For the technology to be adopted quickly, new killer apps will have to be launched, and that could take time.
I’m not implying that QCOM stock is doomed to plunge. QCOM’s deal with AAPL is critical. It also helps that the valuation of QCOM stock is reasonable, with a forward price-earnings ratio of 14.5, and an attractive 3.4% dividend yield. But given the continued uncertainty of the U.S.-China trade war and the lingering antitrust case, more out-sized gains may not be in the cards for QCOM stock.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.