Technology giant Qualcomm (NASDAQ:QCOM) has a viable opportunity and is facing worrisome issues. On the optimistic end of the spectrum, Qualcomm stock no longer has to deal with the staggering dark cloud that was its litigation battle with Apple (NASDAQ:AAPL). It also has a strong lead in 5G innovations. However, has QCOM stock already priced in these tailwinds?
In 2019, the outlook of QCOM stock could be divided into three categories: the Apple lawsuit, the 5G rollout, and the U.S.-China trade war. While the latter is still ongoing, both nations agreed to a limited trade deal. As a result, all of Qualcomm’s important fundamentals are now positive.
That’s not a bad way to start a new year and a new decade. However, investors may rightfully question whether Qualcomm stock can continue to move higher on old news.
In countless columns, I’ve discussed the opportunities 5G offers for QCOM, along with many other companies like Nvidia (NASDAQ:NVDA), AT&T (NYSE:T) and Verizon (NYSE:VZ). At the most elemental level, 5G is a transition to and adoption of a radically powerful innovation. That alone makes Qualcomm stock worth considering.
But as InvestorPlace columnist Chris Markoch noted, companies that participate in the 5G revolution won’t necessarily dominate the next generation of wireless technologies. Rather, 5G is a nuanced and granular technology. Long story short, if QCOM makes the wrong bet, even on a small technicality, QCOM stock could suffer.
Therefore, while 5G offers Qualcomm stock a viable pathway to profitability, it may also be an exaggerated catalyst. With QCOM stock trading at a rich premium relative to prior years, can investors still trust it?
Qualcomm Stock Is Not Just About 5G
Admittedly, I’m guilty of harping on the 5G catalyst of QCOM stock and similar names. Furthermore, I can see why investors may be looking for a more original, substantive argument about QCOM.
However, 5G remains, in my opinion, the most compelling reason to consider Qualcomm stock. True, one has to be careful about putting all the eggs in one basket. And, furthering Markoch’s point, differences in frequency spectrum could impact Qualcomm’s or any other player’s longer-term production strategies.
Still, the important point about Qualcomm stock is not just the 5G rollout, but its potential to create other catalysts. I liken QCOM to an athletic quarterback. If he can’t make a play with his arm due to a stifling defense, then he has the option to escape the pocket and run.
The beauty of 5G really has nothing to do with faster internet speed. That’s great, but speed alone is no longer a standout attribute in today’s tech ecosystem. Instead, it’s what companies can do with that technology that counts.
5G opens the door for other platforms, particularly artificial intelligence, to finally realize their potential. And QCOM isn’t wasting any time, earmarking funds to invest in companies that are trying to develop 5G applications which can be used in areas beyond consumers’ smartphones.
Last year, Qualcomm started a similar initiative for AI applications, particularly for those involving facial recognition. With the incredible speed of 5G, facial recognition can eventually become quite lucrative.
In 2015, a leaked report from the Transportation Security Administration revealed that its agents failed to detect nearly 96% of terrorist threats in simulation trials. Unsurprisingly, the American taxpayer is paying an exorbitant cost for the bumbling TSA.
However, 5G can improve the agency’s effectiveness while reducing its long-term costs. Such applications will be a net positive for QCOM stock.
QCOM Is a Step Ahead of the Competition
Another criticism of Qualcomm stock is the company’s competition. There are many more companies looking to sell 5G technology than the number of firms that were trying to sell 4G technologies at the same stage of its development. Thus, it might appear that the 5G market is saturated before it completely rolls out.
However, I don’t necessarily see that as a problem for QCOM stock. Thanks to the potential of 5G to enable other innovations (such as AI), more competition is natural. Indeed, I’d be disappointed and worried if there wasn’t a spike in competition relative to 4G.
In addition, Qualcomm is ahead of the competition in multiple ways. As I mentioned above, its management isn’t just seeking to produce chips for 5G. It’s utilizing its resources to develop practical applications for those chips. And these applications have implications that touch everything, from consumer-level products to defense-related protocols.
Of course, I understand that Qualcomm stock has soared in 2019 and that many investors are holding out for a discount. If that pullback comes, though, I wouldn’t hesitate to pull the trigger on QCOM. It’s a smart company making even smarter, longer-term decisions.
As of this writing, Josh Enomoto is long AT&T stock.