Qualcomm (NASDAQ:QCOM) stock will get a big catalyst from 5G. But it could be years before the next-generation technology is widely used.

Meanwhile, Qualcomm faces multiple headwinds. It’s fighting the FTC’s antitrust claims, which could materially negatively impact its licensing business. The U.S.-China trade war has yet to be resolved. While QCOM stock can climb tremendously if a deal is reached, the conflict remains a wild card.

Add in lowered earnings expectations for QCOM, and the short-term forecast for QCOM stock looks lukewarm. Ahead of the company’s fiscal fourth quarter earnings, due to be announced tomorrow, the shares may not be a screaming buy. Let’s take a closer look, and see why investors should pass on Qualcomm stock for now.

5G Will Be a Positive Catalyst for QCOM Stock

As Barron’s reporter Eric J. Savitz wrote on Oct. 25, Qualcomm remains bullish on 5G’s future prospects. QCOM CEO Steve Mollenkopf said the company will generate 1.5 times the revenue from selling 5G components as it does from 4G components. 5G also opens the door to a wider range of potential end users. More than 30 companies that make 5G products for homes will use Qualcomm’s chips and components.

But Wall Street is already factoring in 5G into Qualcomm stock. And two key risks are holding down QCOM stock.

First there’s the trade war which is still being still being resolved. In the meantime, QCOM continues to struggle in the  Chinese smartphone market. In a research note earlier this month,  Cannacord’s T. Michael Walkley commented on that phenomenon. While he is bullish on the future of 5G, the analyst thinks that  Qualcomm stock is facing short-term headwinds due to soft demand.

The second main point is a court ruling against the company in a case brought by the FTC. Back in August, QCOM was able to  have enforcement of the ruling postponed while it appealed the decision. The appeal of the decision, which severely handicaps Qualcomm’s lucrative licensing business, will be heard in January 2020.

QCOM stock could be hit hard if the decision is upheld because a permanent drag on the company’s licensing business will be a massive blow to its results.

Qualcomm Stock Is Relatively Cheap

Compared to other chip names, QCOM stock looks cheap. The shares trade at a forward price-earnings (P/E) ratio of 22.4. The company’s enterprise value/EBITDA (EV/EBITDA) ratio is 9.4.

That valuation is substantially lower than the levels of names like AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), and Nvidia (NASDAQ:NVDA):

AMD: Forward P/E of 84.7, EV/EBITDA of 69.6

Broadcom: Forward P/E of 52.3, EV/EBITDA of 14.6

Nvidia: Forward P/E of 48.9, EV/EBITDA of 45

With the 5G catalyst countered by the court ruling, Wall Street’s mixed feelings on Qualcomm make sense.

But is this combination of headwinds and tailwinds really a bad sign for QCOM stock? After all, AMD and Nvidia face similar situations. Both could benefit tremendously from  the AI revolution. But for now, both companies face short-term headwinds.

Does that mean Qualcomm stock is a value play? Not so fast! Given the potential negative impact of the litigation loss,  the relatively low valuation of QCOM stock is logical.

In addition, analysts’ projections for the upcoming earnings report are underwhelming. The average Q4 earnings per share estimate is 71 cents.

Before QCOM provided Q4 guidance, the average projection had  called for EPS of $1.08.

But investors may focus more on the company’s Q1 guidance. A weak outlook could sink QCOM stock further. Following the unveiling of the company’s Q3 results after the market closed on July 31, the shares fell precipitously due to disappointing guidance.

Specifically,  QCOM stock fell from $74.83 at the open on July 31 to as low as $67.12 share. But since August, Qualcomm stock has rallied back above the $80 price level. If the stock makes a similar move after tomorrow’s  results are released, perhaps a buying opportunity could emerge.

The Bottom Line on QCOM Stock: Wait For a Dip

Qualcomm stock has a strong, long-term catalyst in 5G. As mentioned above, 5G chips and components generate 1.5 times more revenue than their 4G counterparts.

But in the meantime, investors must contend with uncertainties on the antitrust and trade-war fronts. Qualcomm’s strength comes from its incomparable intellectual property and its ability to monetize that property. An appeal has bought QCOM some time, but its licensing business could be severely curtailed.

The trade conflict is tough to handicap, but a deal between the U.s. and China would push QCOM stock higher.  It’s unclear whether QCOM’s upcoming results will be weak or strong. But any weakness by QCOM stock could  create a buying opportunity.

Investors should take their time with Qualcomm stock. They should consider buying QCOM if the shares dip after the earnings report. But if the stock does not retreat,  there will still be plenty of time to buy the shares before the 5G revolution goes into hyper-drive.

As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.