Shares of global chip giant Qualcomm (NASDAQ:QCOM) have been climbing ever since the company “won” a multi-year litigation struggle with smartphone giant Apple (NASDAQ:AAPL). As part of the companies’ settlement, Apple agreed to pay Qualcomm a great deal of royalty fees, and Apple agreed to resume buying Qualcomm’s chips for the next several years.
Ever since that landmark “win” for Qualcomm, QCOM stock has been a big winner. Qualcomm stock is up 35% in 2019, despite weak demand for semiconductors.
Now QCOM stock has another catalyst on the horizon: the U.S.-China trade deal.
The trade war is one of the reasons for the weakness. While the direct impact of the trade war on semiconductor demand has not been that intense, the indirect effects of the conflict have had major ramifications on the sector.
Business leaders have been concerned about the rising geopolitical risks and lack of certainty created by the trade conflict. Amid this uncertainty, business confidence is falling, and businesses’ capital spending has declined. The semiconductor industry is greatly affected by corporate capital spending, so when such spending drops, the whole semi sector struggles.
But trade tensions are easing. The U.S. and China say they have made a deal in principle to resolve some of the issues between them. That will inject certainty into these uncertain times. Business confidence will rebound. Capital spending will rise. Global demand for chips will climb, and there will be a rising tide that will lift all boats, including QCOM stock.
As a result, investors should buy Qualcomm stock as trade tensions ease.
The U.S.-China Trade Deal
The trade deal could have huge implications. Above all else, it will inject certainty into these uncertain times. That injection of certainty will lift business confidence, which has been deteriorating for the past 20 months. As business confidence zooms higher, capital spending – which has similarly been slowing – will also bounce back. A large amount of that spending will be used to buy semiconductor chips. So semiconductor revenue should get a lift from the trade deal.
Qualcomm is one of the biggest players in the global semi industry. If that industry surges higher in 2020 because of easing trade tensions, Qualcomm’s growth will naturally accelerate, too, lifting QCOM stock.
Qualcomm Stock Has Multiple Catalysts
The good thing about QCOM stock is that, while easing trade tensions could be a big catalyst, the stock doesn’t need easing trade tensions to head higher.
That’s because QCOM has multiple other catalysts which should keep QCOM stock on a winning path for the foreseeable future.
First and foremost, the 5G boom coming in 2020 and 2021 should increase demand for Qualcomm’s 5G chips. Second, a Qualcomm-powered 5G iPhone will also be a strong positive catalyst for QCOM stock.
Between those two catalysts, Qualcomm has more than enough firepower to generate rapid revenue and profit growth over the next two to three years. That strong revenue and profit growth – coupled with the undemanding 18-times forward price-earnings multiple of Qualcomm stock – should lead to strong gains by Qualcomm stock over the next few years.
The Bottom Line on QCOM Stock
QCOM stock looks good now. Easing trade tensions, the forthcoming 5G boom, and higher Apple revenue are in its pipeline. Those three major developments should help boost its revenue and profit growth over the next two to three years,. As a result, QCOM stock should keep winning for the foreseeable future.
As of this writing, Luke Lango was long QCOM.
