Qualcomm (NASDAQ:QCOM) hasn’t caught many breaks of late. The Federal Trade Commission is looking to prevent the presentation of new documents in its antitrust argument with Apple (NASDAQ:AAPL). The EU is levying another $1.1 billion worth of antitrust fines. Never even mind the fact that the trade war with China, though temporarily cooled, has hardly ended.
In short, QCOM stock remains mired in question marks. While the iShares PHLX Semiconductor ETF (NasdaqGM:SOXX) has gained 33.5% in the past three months, Qualcomm shares have only eked out a 4.6% increase. QCOM has the third-largest weighting — 8.06% — of the exchange-traded fund’s 31-stock portfolio.
There’s a proverbial ace in the hole, however, that’s made Qualcomm stock a worthy gamble here, even if the average investor doesn’t fully understand the underlying technology.
Meet Snapdragon 855
Qualcomm’s Snapdragon 855 mobile processor is a game-changer that’s been mostly underestimated.
Unveiled in December, the 855 processor was welcomed with great acclaim. Not only was it the first microprocessor capable of handling 5G connectivity, it handles artificial intelligence work like a champ.
As it turns out, the 855 is even more of a beast than it initially seemed.
The latest accolade was laid on last week, when Germany certified the system on a chip as secure enough to replace separate chips that had previously been necessary to fully secure mobile hardware. By reducing the number of chips needed to make a device secure, therefore lowering costs and required size. The EAL-4+ certification from Germany’s Federal Office for Information Security is not only highly regarded by other nations, but confirms that the Snapdragon 855 is as secure as true smart cards.
The implications are tremendous. Not only will 855-powered smartphones be able to serve as e-wallets and transit cards, the tech will support multiple SIM applications even with just one SIM card slot.
It also means Snapdragon 855 devices can serve as offline payment tools, and surprisingly powerful gaming platforms.
This is all largely solutions to problems that don’t yet exist. But, better understanding of how consumers and corporations will utilize technologies once made available has drawn the interest of a handful major tech names.
Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) is one of them. Subsidiary and breadwinner Google is developing at least two different Chromebooks that will utilize the 855 processor. Codenamed “Trogdor,” the Chromium-driven devices in question could readily rival the computing power and functionality of a wide swath of Windows-running laptops.
That said, Windows-maker Microsoft (NASDAQ:MSFT) may also be exploring the possibilities of the ground-breaking Snapdragon 855 … or at least its close cousins.
Qualcomm’s 8cx may not yet be available in any laptops, but it’s coming. It handles Windows 10 as well as it needs to, and then some. And, Microsoft has already tinkered with Qualcomm’s custom-built chips for its Surface line.
It makes sense. Intel (NASDAQ:INTC), though with a better legacy than it arguably deserves, has been struggling to deliver performance at palatable prices. OEMs have noticed as much as consumers have, slowly but consistently straining once-strong partnerships by prompting consumer-tech companies to explore all alternatives.
Samsung (OTCMKTS:SSNLF) also chose the 855 for its new Galaxy S10. Even ZTE is testing out the Snapdragon 855 mobile computing platform, for the most unlikely of reasons — gaming. Last month, with help from partner Tencent (OTCMKTS:TCEHY), demonstrated the potential of cloud-based video games using 5G connections and the Qualcomm CPUs that made it possible.
Bottom Line for QCOM Stock
It’s a rarity for one single product to serve as a reason to step into a stock. Not only is more diversity — rather than less diversity — of a product menu desirable, technology rivals are generally quick to respond by mirroring a rival’s new development. QCOM stock may prove to be an exception to that norm though.
There’s little out there on the market or even in development that can readily rival the new 855 system on a chip. And, to the extent the mobile processor could be copied, Qualcomm is well-shielded by a deep and wide patent portfolio that it used to at least keep the venerable Apple in check.
Bulletproof? No, it isn’t, but on this front it’s certainly close to it. Its all-purpose system on a chip isn’t forcing many compromises, and already has a massive degree of credibility.
That, coupled with the fact that Qualcomm stock is trading at a palatable forward-looking P/E of 15.2, isn’t a bad bullish thesis at all.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.