Qualcomm (NASDAQ:QCOM), like other semiconductor companies makes the chips, modems, etc. that go into 5G products like smartphones. Those powerful 5G-enabling products also help expand the reach of artificial intelligence and augmented reality. It may even make autonomous vehicles a reality. This game-changing outlook has bolstered the bullish case for Qualcomm stock in recent years.
Specifically, 5G been a catalyst for QCOM over the past year because companies, most notably Apple (NASDAQ:AAPL) are using Qualcomm’s products in their products. Even though customers have had to wait on 5G smartphones, Qualcomm and others like it were steadily building the hardware.
For much of 2019, investors rewarded Qualcomm stock. This was particularly true after the company settled its legal dispute with Apple. In fact, a third party document released by a German news outlet, Winfuture.de shows that Apple has an agreement to use Qualcomm products in some form of the company’s iPhone for at least the next four years.
In the last 12 months, the company’s stock price has increased over 70%. But the semiconductor sector is notoriously cyclical and it’s fair to ask if Qualcomm may have hit the ceiling on how high its stock can rise.
QCOM Is a Heavily Analyzed Stock
In the last 12 months, 24 analysts have weighed in with an opinion of Qualcomm stock. The consensus opinion is that the stock is a buy. And it has a 12-month price target of just a little over 7% from its current level. Both the price and the potential upside are higher than any time in the last six months.
This price target is consistent with some of Qualcomm’s competitors in the semiconductor sector. Broadcom (NASDAQ:AVGO) has a consensus target of just over 8%. And Nokia (NYSE:NOK) has a price target of over 10%.
However, Qualcomm stock still appears to be a polarizing investment. A consensus estimate comes from a simple average. The high- and low-price targets are not removed as outliers. And the stock has quite a range of outcomes. The highest price target is $115. The lowest is $60.
And keep in mind that semiconductor stocks are very cyclical stocks. With that said, Qualcomm stock has appreciated nearly 70% in the last 12 months. It’s fair for investors to wonder how much run the stock has left. And it also suggests that the stock is factoring in most of the gains it might receive from 5G.
Qualcomm Can’t Stay Out of Court
InvestorPlace contributor Tom Taulli points out that Qualcomm stock dropped over 7% since hitting a 52-week high in January. The stock failed to regain that high even after a favorable earnings report.
Taulli also pointed out that, in the short term, Qualcomm finds itself back in court. Just this month, Qualcomm became the target of an antitrust lawsuit in Europe dealing with potential anticompetitive behavior regarding its 5G chips. Once again, the company is being brought to account for its “no license, no chips” policy.
What is more concerning is a lawsuit that the Federal Trade Commission (FTC) has brought against Qualcomm. The FTC is alleging that Qualcomm is using its ownership of two important wireless patents to suppress competition. Initial arguments started last week. If the outcome goes against Qualcomm, it would be a major blow to the company’s entire business model.
The good news is the company has been engaged in lawsuits before and has always managed to avoid serious damage to the stock. On the other hand, it can’t be helpful to continually being the target of such lawsuits.
Is Qualcomm Stock Too Risky?
I think sales trump everything else. And Qualcomm’s agreement, no matter how tenuous with Apple, ensures that the company will have consistent revenue for the next four years.
But the company’s fixed costs of getting its products to the 5G party appear to be priced into the stock. And the company is not immune to the effects of the coronavirus. The company does significant business in China and lowered their forecast due to anticipated impact on the demand and supply chain. This was a sentiment that was echoed by InvestorPlace’s Will Ashworth who said that until investors know what the full effect of the coronavirus is, they should not be viewing Qualcomm stock as a candidate to break $100 per share.
By no means is Qualcomm a bad stock to hold. It offers a dividend that appears to be safe for now. But right now, there is a lot of noise surrounding the stock. Once that noise quiets down, it will be easier to get a more objective look on the potential buying opportunity.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
