Qualcomm (NASDAQ:QCOM) had a huge year in 2019. This year was on track to be even better, and QCOM stock reflected that. In January, it came within a hair of closing at $96, a record high. Shareholder jubilation quickly turned to dismay when the company’s stock plummeted during the March market selloff. However, Qualcomm didn’t stay in the cellar for long. It’s now up 28% from that March low. Thanks to the promise of 5G adoption, this stock is well positioned for long-term growth — although investors may need to show a little patience.
As mentioned earlier, 2019 was massive for Qualcomm. After years of legal wrangling, Apple (NASDAQ:AAPL) settled its dispute over licensing fees. The resolution of that battle won Qualcomm $4.5 billion in withheld royalties and a six-year contract to once again supply modems for Apple iPhones. It also resulted in Intel (NASDAQ:INTC) abandoning its smartphone modem business. That was sold to Apple, which will eventually be a problem, but not for at least six years.
QCOM Stock and the Anticipated 5G Catalyst
After years of roller coaster action and dropping below $50 in February 2019, QCOM stock took off.
It wasn’t just the Apple monkey off its back. Qualcomm and its investors were looking forward to 2020, the year that 5G was expected to go mainstream.
In a February blog post, the company wrote:
“Since launching last year, 5G commercial deployments rolled out in more than 20 countries across the globe and millions of people are using 5G phones. 5G is expanding worldwide and permeating new segments and industries. And our 5G platforms are helping our customers reach more people in more places. Simply put, 5G’s momentum is extraordinary. And it’s not slowing down — this year, 5G goes mainstream.”
Mainstream 5G adoption is a huge deal for Qualcomm. The company dominates the market for Android smartphone processors and modems, and its 5G modems are expected to be in the iPhone 12. PC makers are even incorporating Qualcomm 5G chips in their next generation ultra-light devices. After several years of declining smartphone sales, mainstream 5G and its promise of lightning-fast connectivity was expected to trigger a wave of smartphone upgrades.
That would represent a big payday for Qualcomm.
Coronavirus-Triggered 5G Delays
The novel coronavirus pandemic is now playing spoiler for Qualcomm’s big year.
Supply chain and manufacturer disruptions combined with store closures contributed to the global smartphone market recording its steepest drop ever in February. Sales were down 38% compared to last year. There have been concerns that travel bans and supply chain issues could push out Apple’s iPhone 12 launch. In addition, some carriers have paused or delayed 5G rollout plans.
Qualcomm’s enthusiasm from February may be a little tempered now, but no-one is expecting 5G mainstream adoption to come to a screeching halt. Even the coronavirus wasn’t able to do that. It may be slightly delayed, but it’s still coming. Investors in QCOM stock may need to be a little more patient, though.
Bottom Line on Qualcomm
We know 5G is going to be huge and that consumer demand is there. We know carriers are building out their 5G networks, a necessary move that will boost consumer demand even further. And we also know Qualcomm is the leader in the 5G smartphone space. Its Snapdragon chips — with either integrated 5G modems or 5G modem add-ons — are the first choice for Android smartphone makers. Until Apple comes up with its own version, Qualcomm 5G chips are the only choice for new iPhones. We know Qualcomm 5G tech is the first choice for connected PC makers.
In other words, the future looks bright for Qualcomm. That means upside for QCOM stock.
What we don’t know at the moment is timing. We thought we knew. We thought 2020 was going to be the year of 5G. The coronavirus pandemic may have thrown a wrench in everyone’s plans, but the worst case scenario is that “the year of 5G” gets slightly delayed, or stretches out into a year and a half.
Qualcomm is still not fully recovered from the market selloff, selling at a considerable discount compared to the start of year. With a big 5G payoff yet to be realized, that makes Qualcomm’s stock very tempting.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.