Qualcomm (NASDAQ:QCOM) is making a rapid recovery from the economic ravages of Covid-19. Things are looking up for Qualcomm stock.
While shares remain well below their January peak of $95, they opened for trade April 17 at nearly $77. That’s up from a March 22 low of about $61. The market cap is back up to nearly $88 billion, on trailing-year revenue of $24.5 billion. The price to earnings ratio is back up to almost 22.
But it’s not too late for you to get in. Qualcomm’s 62 cent per share dividend, supported by ample cash and earnings, yielded 3.26%. While other companies were eliminating their dividends, Qualcomm has recently raised its payout 5%.
As the economy continues to recover today’s Qualcomm stock may look like a great bargain.
Or will it?
Phones Still Work
Qualcomm specializes in communication chips for phones. It dominates the market thanks to an extensive patent portfolio, which it has defended in courts around the world. It has used this dominance to gain a leading position in other mobile phone silicon with its Snapdragon chips.
Qualcomm won 36% of the smartphone Application Processor market last year. When such processors included Artificial Intelligence (AI) support, a market that grew 45%, Qualcomm’s share rose to 51%.
While the roll-out of 5G services has been delayed by the virus, it’s still moving ahead. The 5G wave will bring intelligence to everything from traffic lights to heart monitors.
Vast new swaths of frequency will be used for Internet-based applications, in both higher and lower frequency bands. Qualcomm is going to get a big share of that money. Qualcomm has already released code support for the silicon it intends to sell.
The Threat of the Clouds to Qualcomm Stock
As our Ian Bezek wrote recently, Qualcomm stock was hurt during the quarter by the collapse of OneWeb, one of three satellite Internet competitors. It lost out to Tesla (NASDAQ:TSLA) founder Elon Musk’s SpaceX and Amazon (NASDAQ:AMZN) founder Jeff Bezos’ Blue Origin, which are still moving ahead.
That’s not the only threat coming from better-heeled competitors. Qualcomm’s aggressive defense of its patents, linking purchase of its rights with purchases of its silicon, has created enormous resentment in the clouds. The Cloud Czars, with their $1 trillion plus market caps, are determined to reduce their dependence on Qualcomm.
Apple (NASDAQ:AAPL) is already moving toward building its own chips for the iPhone. Now Alphabet (NASDAQ:GOOGL) has signaled it will do the same, developing chips for its Pixel phones to be made by Samsung Electronics (OTCMKTS:SSNLF) next year.
Fortunately Microsoft (NASDAQ:MSFT), now the largest of the Czars by market cap, remains a Qualcomm ally. The two companies were already re-imagining offices when the virus hit.
Microsoft calls what it’s doing Digital Transformation, combining mobility and mixed reality, delivering artificial intelligence to the edge of networks. This is putting Qualcomm chips inside new kinds of devices like mixed reality headsets. These now look more like sunglasses than the clunky things Facebook (NASDAQ:FB) drew jeers for five years ago. They also have business uses cases, like bringing instructions inside a worker’s frame of vision.
Qualcomm also has a Chinese card up its sleeve. Having won rights to the China market, it is now working with companies there on things like smart displays. These should keep it on the cutting edge of computing through the decade.
The Bottom Line on Qualcomm Stock
Despite its market cap of $88 billion, Qualcomm is less than one-tenth the size of the companies that now dominate technology.
But there is plenty of money in 5G and the Machine Internet for Qualcomm to prosper. The fact that Qualcomm remains committed to its dividend should also keep it a favorite among income investors.
Dana Blankenhorn has been a financial and technology journalist since 1978. 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 AMZN, MSFT, FB, QCOM and AAPL.
