If you have been holding Qualcomm (NASDAQ:QCOM) for the last year you’re probably feeling pretty good. Why? The shares are up almost 60%.
But Qualcomm sales aren’t up 60%. Neither is Qualcomm’s net income. What has happened is that the legal skies around the company have cleared somewhat, allowing it to regain the multiples of other tech stocks.
At its Jan. 13 opening price of nearly $91.05 per share, Qualcomm stock now sells for over 25 times trailing earnings. The yield on its 62-cent dividend is down to 2.8%. The market capitalization of $103 billion is over four times its annual sales of about $24 billion.
You have a paper profit, but you don’t have a real profit until you sell your shares and have cash in your hand. Is it time to sell some Qualcomm stock?
Qualcomm Sells Cars
Qualcomm’s first big announcement of 2020 is Snapdragon Ride, a platform for self-driving cars. The chips and software will be available this year. Self-driving cars using them could be available in 2023.
It’s an interesting vision, but it’s three years away. There are other hardware companies, like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA), offering similar visions. The market until now has been controlled by Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo unit, whose valuation is higher than that of any car company. Traditional car manufacturers, resentful of Alphabet, still have a decent portion of market control as well.
Qualcomm showed off its kit at last week’s Consumer Electronics Show, taking reporters for a spin on the Las Vegas freeways. The company said it is “working with almost every major auto manufacturer” to bring this to market.
What Qualcomm didn’t offer reporters were orders, signed contracts or any specifics on deals. General Motors (NYSE:GM) is listed as a big partner, but how much it’s all worth remains unclear.
Back in Court
Meanwhile, Qualcomm is still trying to win the right to control the 5G world through contracts that tie its patents to chip sales.
President Donald Trump’s administration is supporting the company, against its own Federal Trade Commission. They’re trying to overturn an order last year from Judge Lucy Koh, stayed pending appeal. The appeal is based on the idea that smart phones keep getting better and cheaper, despite Qualcomm’s efforts, and that the decision against it is an overreach.
Apple (NASDAQ:AAPL), which settled its own case on Qualcomm’s terms last year, is also still trying to get out of its dependence on the company. It bought Intel out of the modem business and is trying to make its own communications silicon, as it’s making its own chips through Taiwan Semiconductor (NYSE:TSM).
The 5G market won’t just be about smartphones. Over the next five years, wireless connectivity is expected to get into nearly everything you buy and everything you interact with. Qualcomm is at the heart of it, which is why I’ve been pounding the table for the stock during its run-up.
The Bottom Line on Qualcomm Stock
If your investment horizon is 5-10 years, you should have some Qualcomm in your portfolio and shouldn’t be reading this piece. Over time, Qualcomm stock is going to do great, even if it loses some market share.
If you’re approaching retirement, and the heart of the baby-boom generation turns 65 this year, you might want to take some money off the table. Tech is overbought in the near term, with Apple selling at 26 times trailing earnings. A correction is overdue.
Self-driving cars are still three years away and Qualcomm faces competitors everywhere. When traders panic over this, you can get back in.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and NVDA.
