Some folks might accuse me of being a worrywart. Case in point: Qualcomm (NASDAQ:QCOM). On this name, I agree with several of my InvestorPlace colleagues who seem in unison in a belief of tech firms ushering in a decade of unprecedented societal transformations. And while over the long run, the narrative supporting Qualcomm stock is incredibly safe, right now, the focus isn’t on strategy but rather tactics.
As you know — unless you’ve already clamped down into your doomsday bunker — coronavirus from China is front-page news. As of Monday morning, there were almost 111,000 confirmed cases worldwide with 3,480 deaths. However, I wouldn’t pay too much attention to these statistics as they will surely change for the worse by the time you read this. Suffice to say, the sentiment for tech names like Qualcomm stock has waned considerably.
One of the most worrisome U.S. domestic concerns is that the coronavirus is hitting economically robust states. Washington is the hardest-hit state, with Seattle business owners complaining that their city is turning into a ghost town. Further, California declared a state of emergency following its first coronavirus-related death. Oregon followed over the weekend.
This has huge implications not just because of their tech-centric economic engines but also due to their importance for the 5G rollout. After all, you wouldn’t launch this next-generation telecommunications platform in the boonies of Nebraska (no offense to any cornhuskers). Unsurprisingly, then, telecom giants like Verizon (NYSE:VZ) and AT&T (NYSE:T) have looked weak and pensive in the markets.
Logically, this also likely creates a massive ripple effect onto Qualcomm stock. With one of the underlying company’s key drivers taking a backseat, I’m not sure where else QCOM shares would go but down.
Qualcomm Stock Hasn’t Priced in the Black Swan
Again, let me reiterate that I’m not negative on the longer-term picture for QCOM. Previously, I’ve spoken well about the tech firm’s myriad innovations and their relevance for the economy of tomorrow. And yes, there will be a tomorrow (although you might not be around to see it).
I’m not being cynical. That’s just life, with or without coronavirus.
However, as it rages across the world — there are nearly 7,500 cases in South Korea, nearly 7,400 in Italy and 1,100 in Germany — demand implosion represents rightful anxiety. In this situation, nobody wants to go out for a stroll unless they absolutely must.
Thus, it’s no surprise that consumer tech giant Apple (NASDAQ:AAPL) has incurred shaky trading. Even if it had zero supply chain risks, the customer has little incentive to buy anything besides food and water.
But the problem, of course, is that thanks to globalization, tech doesn’t operate in a bubble. While Apple has benefited from advantaging — some might say abusing — China’s cheap labor, for every action, there is a reaction. This boomerang effect is now hitting Apple and others with the business end of the globalization stick.
Naturally, corporate strategists are rethinking their exposure to the world’s second-biggest economy. Let them think. For now, neither supply nor demand is readily available. Eventually, this will ripple down to the Qualcomm stock price.
Yes, QCOM can shift gears to other endeavors, such as automated vehicles. But even that has China as an unavoidable factor: you might not have a Chinese car but the critical parts that make it up might be sourced from there. Furthermore, it’s just not something that most consider a priority at the moment.
For me, the bottom line for Qualcomm stock is that generally, investors are not interested in tech-centric growth names.
QCOM Trading in Denial
With this black swan event worsening in countries outside China, I believe the probability for a downside move in the nearer term far outweighs the upside. For those who have a sizable position in QCOM stock, you may want to trim some exposure.
Currently, shares are desperately holding onto their 200-day moving average. This is a common indicator which analysts review to gauge longer-term strength in a stock. Personally, I think that many investors are living in denial, hoping that coronavirus isn’t as bad as it looks.
For what it’s worth, I share the same hope. A global economic recession does no one any good. However, my philosophy is that you can pray for your desired outcome but still prepare for the worst. Until we see strong evidence to support such optimism, I’d look at Qualcomm stock as a glass half-empty.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he owns shares of AT&T stock.
