Qualcomm (NASDAQ:QCOM) has seen its impressive growth streak cut short by the coronavirus. After settling its long legal spat with Apple (NASDAQ:AAPL) last April, Qualcomm stock was on fire.
The company posted 65% growth by the time it closed at a record high of $95.91 in January. Since then, the markets have been hit by historic sell-offs and QCOM has not been immune.
However, with 5G adoption just beginning to take off, Qualcomm stock at the $67 level is very tempting. Here’s why.
What Consumers Can Expect to Gain From 5G
We’ve been hearing a lot from smartphone makers and mobile carriers about the revolution 5G will bring. What does that really mean, though?
Speaking to the San Diego Union-Tribune, James Thompson, QCOM’s Chief Technology Officer explained the benefits consumers can expect from a 5G smartphone: “So what we are trying to do with 5G mobile broadband is make it feel like you have a fiber optic cable plugged into your phone all the time, and it is almost free. You get unlimited capacity and it is awesome.”
That’s the potential. The reality is that carriers like Verizon (NYSE:VZ) have made it clear that they plan to charge extra for 5G connectivity. If not now, then eventually.
And even with plans that currently include free 5G network access and unlimited data, carriers throttle data speed after a certain cap is reached. At that point, 5G’s speed advantage disappears. So the concepts of “unlimited capacity” and being “almost free” are a little optimistic.
In addition, the current state of 5G networks in the U.S. is a little underwhelming. Most 5G deployments are currently low-band 5G, which only offers speeds about double that of 4G LTE. The hyped 10x speed high-band 5G is currently available only in limited urban areas.
The 5G Rollout and Qualcomm Stock
“5G in 2020 is mostly a hype fest. Slowly, 5G networks in the next few years will expand coverage, as a wider range of affordable 5G smartphones hit the market,” said Mohanbir Sawhney, a professor at Northwestern’s Kellogg School of Management. “Only then will the consumer adoption of 5G starts to take off, which could take until 2025 as service gradually expands.”
Building out that 5G infrastructure will enrich the coffers of companies like Nokia (NYSE:NOK), but as 5G becomes more widely available — and its benefits to consumers more obvious — demand for 5G smartphones will increase. At the moment, the technology is primarily found in expensive, flagship smartphones. It’s expected to be the must-have feature in Apple’s upcoming iPhone 12 series.
As carriers expand their 5G coverage and smartphone makes start to include 5G modems in all their smartphones, QCOM will be ready. The company already announced it will be releasing mid-range Snapdragon processors with integrated 5G modems starting this year.
As consumers experience the benefits of the technology, 5G is expected to kick off a wave of smartphone upgrades that will help to counter the past few years of slowing and even negative growth.
With its 5G modems dominating the market, that is nothing but good news for Qualcomm stock. The outlook is longer-term — remember it may take until 2025 for 5G to really take off — but Qualcomm stands to benefit in a big way.
Even after a week of crawling back from the worst of the coronavirus-fuelled market mayhem, Qualcomm stock is still down 30% from its 2020 high. Keeping that future growth in mind, QCOM at this price makes for an attractive investment.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
