Shares of Qualcomm (NASDAQ:QCOM) are higher by nearly 47% year-to-date, an impressive showing when accounting for the company’s various litigation headwinds and one that is slightly ahead of the iShares PHLX Semiconductor ETF (NASDAQ:SOXX), which includes QCOM stock as its fourth-largest holding at 7.68% of the portfolio.
Although Qualcomm stock’s 2019 performance is mostly inline with that major semiconductor benchmark, the showing remains solid against the backdrop of litigation challenges involving Apple (NASDAQ:AAPL) and the U.S.-China trade war to which Qualcomm has plenty of exposure. At the end of the day, it’s hard to quibble with Qualcomm stock’s 2019 price action. Yes, there have been better bets in the semiconductor space, but the California-based chip maker has also outpaced a slew of chip rivals in 2019.
Currently, there are dueling views on QCOM stock. There is a camp of investors believing the shares have priced in some, if not all, of the available near-term good news and that Qualcomm needs either industry or company-specific catalysts to rally materially into year-end. Then there are investors who believe Qualcomm stock is one of the premier large-cap avenues for playing the 5G telecommunications trend, which is expected take hold next year.
Over the immediate term, a potential catalyst will be the company’s fiscal fourth-quarter earnings report yesterday. Qualcomm’s 78 cents per share beat the Zacks consensus estimate of 71 cents per share, which compared to 90 cents a year ago. These figures are adjusted for non-recurring items.
5G is Where It’s at for Qualcomm
The new 5G system is, of course, an improvement on the current 4G, and should result in fast download speeds, improved connectivity and reduced latency. To that end, some investors may think the best way of playing the trend is with dedicated telecommunications companies, such as AT&T (NYSE:T) or Verizon Communications (NYSE:VZ). However, chipmakers like Qualcomm, which has robust 5G exposure, could easily prove to be the superior avenues for investors looking to access the new communications system.
“In the company’s core markets for mobile phone chips and licensing, he says, Qualcomm (QCOM) gets a double win, with an increased number of components in 5G phones than 4G ones, and more licensing dollars,” according to Barron’s. “He (Mollenkopf) says that Qualcomm gets 1.5 times as much revenue on average from a 5G phone than a 4G model.”
Qualcomm has already landed at least on important customer: Apple. The 5G iPhones due out next year will be powered by Qualcomm’s X55 5G modem. The impact of 5G for Qualcomm stock should not be underestimated, assuming the company proves adept at execution and displays proficiency in chips that can blend multiple 5G capabilities. That’s what some academics believe is what it takes to win in the new 5G environment.
“And I think the people who are going to win in 5G may not be the same players as before,” said MIT engineering professor Muriel Medard. “It will be the company that figures out how to provide people with a seamless experience using the different substrates in a way that is highly opportunistic.”
Bottom Line: QCOM Stock is a Well-Positioned Play
In addition the aforementioned 5G opportunity set, QCOM stock has other drivers, including its rich intellectual property (IP) and patent portfolios, which bolster licensing revenue.
“We expect Qualcomm’s licensing business, the driver of the firm’s narrow moat rating, to see solid growth, due to our expectation of continued 4G penetration while 5G appears to be another strong opportunity as the technology ramps in 2020 and beyond,” said Morningstar in a recent note.
Additionally, Qualcomm has a decent-sized cash hoard. Though that number has been volatile, the company had $14.35 billion in cash on hand as of June 30, 2019, indicating there’s room for buybacks and for Qualcomm stock to continue being a dividend growth story. The shares currently yield 2.97%.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.