Typically, blue-chip technology firms earn their market valuation premiums on their innovations. That way, investors can justify a consistently rising share price. However, with Qualcomm (NASDAQ:QCOM), the narrative largely focuses on the 5G rollout, which is undoubtedly a massive event. Still, it’s fair to ask if that alone is enough to warrant a shot with Qualcomm stock.
Between the second half of 2016 and the first half of 2019, QCOM stock has gyrated wildly. Much of this wildness was of course due to the legal clouds that hung over the tech firm — and those that still do in the case of the Federal Trade Commission’s lawsuit for antitrust violations. However, a longstanding dispute between QCOM and Apple (NASDAQ:AAPL) finally reached an amicable conclusion.
Naturally, with this headwind settled, Qualcomm stock exploded higher in the markets. Later, though, the harsh realities of the U.S.-China trade war settled shares down to a slow trek higher.
But with QCOM stock now trading near all-time highs, does any more juice remain? After all, the settlement with Apple is now firmly in the rear-view mirror. Additionally, the 5G narrative appears overplayed.
If 5G represented any other innovation, I would probably adopt a cautionary approach with Qualcomm stock. However, 5G is much more than fast downloading speeds. In my opinion, it’s a force multiplier, facilitating previously unimaginable solutions to operate off its foundation.
Even the Apple deal was born out of Qualcomm’s singular long-term focus on emerging technologies, including 5G. If Qualcomm was just any other company, I doubt that Apple would come to the negotiating table. Thus, I remain intrigued about QCOM stock, despite its recent run to unprecedented heights.
5G Is a Gift in Perpetuity for Qualcomm Stock
As you know, Qualcomm is the clear leader in providing 5G-capable modems for smartphones and portable smart devices. While we take this for granted today, this was no easy accomplishment. Most notably, semiconductor powerhouse Intel (NASDAQ:INTC) exited its ambitious 5G modem business.
Plus, as I just mentioned, Apple came to the negotiating table despite leveling bitter accusations against Qualcomm. I don’t know a better validation for QCOM stock than this.
To be fair, Apple wanted to avoid falling behind in the ultra-competitive smartphone wars. But if the market’s focus was merely on consumer technology concerns, I don’t think Qualcomm stock would move that far. Instead, 5G opens new technological paradigms that 4G could never hope to actualize.
To make a long story ridiculously short, 5G is wickedly fast. The key considerations here are massive data transfers through low latency networks; that is, 5G enables machines to “speak” to each other with virtually no lag.
Concurrently on the road to 5G, several tech firms made powerful headway in areas like artificial intelligence, deep learning and automation. However, bringing these innovations out of the laboratory into the real world is another matter altogether.
Last year, Uber (NYSE:UBER) made tragic headlines when its fully autonomous vehicle struck a pedestrian. I studied the in-car camera footage and a human driver would have at least made some attempt to avoid the pedestrian.
This accident demonstrates the tech gap we have between autonomous ambitions and reality. However, Qualcomm has developed protocols and systems to close this gap, including mechanisms to facilitate smart city infrastructure. With this, AI projects can finally be realized, potentially opening several revenue channels in perpetuity for Qualcomm stock.
Don’t Let Nearer-Term Noise Scare You
With all this said, I can understand why some investors are hesitant in engaging QCOM stock. For one thing, the underlying company must still deal with legal concerns. Aside from the aforementioned FTC suit, Qualcomm has an ongoing dispute with Huawei for unpaid royalties. And in a related note, the trade war could go sideways in a hurry.
Therefore, I’m not opposed to waiting for a better price point. If for instance U.S.-China trade negotiations break down (again), I see volatility risk for Qualcomm stock. That also includes any tech name that has substantial exposure to China.
Ultimately, though, I believe in 5G and its exponential growth possibilities. This isn’t a one-time installation. Instead, this is a progression, with each cog in the gear presenting innovative offshoots. Unlike other 5G-related names, Qualcomm leads in both operations (smartphone modems) and innovations (smart city infrastructure).
Yes, you’ve heard this all before. But when a story is this good, there’s nothing wrong in asking for a sequel.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.