Qualcomm (NASDAQ:QCOM) stock price had a stellar 2019, as it was up about 59%. In the first two weeks of the new year, QCOM stock has extended that run, up another 3%.
San Diego-based Qualcomm is the world’s largest maker of mobile chipsets and wireless modems. It’s expected to release Q1 2020 earnings results on Feb. 5. Ultimately, investors should always base their decisions on individual risk/return profiles. Yet due to the impressive increase in the QCOM share price, investors with paper profits may now want to ring the cash register. Those who do not own Qualcomm stock may consider buying into the company at any upcoming dip.
What to Expect from QCOM Stock’s Next Earnings
The chip giant is best known for the Snapdragon suite of system-on-chip (SoC) semiconductor products, which underpin smartphones. In 2019, as the leading supplier of mobile SoCs, weak smartphones sales have been a major concern for the company. Nonetheless, the QCOM shareholders have looked past the soft sales and pushed the stock price to a recent 52-week $94.11 high.
When the company reports Q1 earnings, analysts will analyze three segments:
- QCT (Qualcomm CDMA Technologies): semiconductor business, about 60% of revenue;
- QTL (Qualcomm Technology Licensing): licensing business, about 19% of revenue; and,
- QSI (Qualcomm Strategic Initiatives): makes strategic investments, about 1% of revenue.
Although QCT provides Qualcomm with most of the revenue through sale of mobile chipsets, wireless patents provide most of the profits. Put another way, QCOM stock’s higher-margin licensing unit supports the growth of its lower-margin chipmaking business.
Many other companies, including tech giants such as Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Samsung (OTCMKTS:SSNLF), that manufacture or use chips, need to obtain a license from QCOM. According to the company, revenues from Samsung constitute more than 10% of consolidated revenues. Similarly, revenues from Hon Hai Precision Industry, which trades as Foxconn Technology Group, and other suppliers to Apple, also constitute more than 10% of consolidated revenues.
And the owners of QCOM stock will likely benefit from the continued reliance of these companies on Qualcomm’s intellectual property as the Southern California chipmaker is one of the leaders on the 5G front, propelling earnings growth.
Major 5G Player
2020 will be the year when 5G wireless technology moves to the fore. And the fifth-generation infrastructure market is expected to grow at a compound annual growth rate (CAGR) of 30% in the first half of this new decade.
If experience and past results act as a guide for the future, Qualcomm’s success in earlier 3G and 4G mobile networks will help the stock increase its bottom line.
The evolution means handsets must have new chipsets that are 5G-compatible. With the smartphone upgrade cycle that is underway, many users will be purchasing a 5G-compatible device. Qualcomm management is estimating that about 200 million of those will be shipped this year.
In April 2019, Intel (NASDAQ:INTC) announced that it would be leaving the market for 5G chips for mobile phones. Intel’s departure leaves Qualcomm to lead this segment. When Apple debuts three 5G compatible phones later in 2020, they will all run on QCOM modems. So, too, will the new Yoga 5G personal computer from Lenovo Group (OTCMKTS:LNVGY), recently unveiled with its QCOM chips.
In other words, Qualcomm is in a strong position to benefit from 5G development in the coming quarters.
Autonomous Driving and QCOM Stock
To be sure, 5G has not really entered our daily lives yet. When it does, it is expected to improve the network capacity and connection speed significantly. During 2019 various providers and cell phone producers that have contributed to this project have started rolling out their products and services.
In addition, other emerging technologies, such as artificial intelligence (AI) autonomous driving, will likely be affected in a very big way. Earlier in January, Qualcomm announced a computing system, dubbed Snapdragon Ride, for autonomous vehicles.
Within the next three year, the company is getting ready offer a platform that will be able to handle a wide range of cloud-to-car activities related to autonomous driving.
In other words, 5G is likely to open up new venues for Qualcomm as the company expands its portfolio to reach out to a wide range of customers.
Should You BUY QCOM Stock Now?
I have been a firm believer in Qualcomm stock for over a year, now. And fundamental reasons are likely to drive QCOM shares to higher levels in the coming months, too. The company will provide a significant part of the intellectual property that will be used to develop 5G communications standards.
However, given the recent increase in the QCOM share price, I do not regard it as a value proposition at this point. I’d rather wait to see the various metrics to be released in the next earnings report before buying into the stock.
Yet, if you are a long-term investors whose portfolio can weather daily swings in the market, you may want to sit through any potential volatility during the earnings season.
Alternatively, you may also consider hedging your position with covered calls. For example, Feb. 21 expiry ATM calls would offer investors some downside protection as well as enable them to participate in a potential up move following the earnings release.
Finally, those investors who buy into QCOM share price now would also benefit from the current dividend yield of 2.7%. Income investors know that they can compound their returns through reinvesting dividends from high-yielding stocks. Qualcomm has a history of increasing dividends and it may not ba a surprise to hear that the board increases the dividend in 2020.
Longer-term, I’d expect QCOM stock price to reach $125 in two to three years.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.