Semiconductor stocks are notoriously cyclical. And Qualcomm (NASDAQ:QCOM) is no different. A quick look at the QCOM stock chart shows the predictable peaks and troughs that define the semiconductor industry.
But for the last year, Qualcomm along with other semiconductors like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) have been behaving like growth stocks as investors bought and sold based on one number and one letter that spell 5G.
The real promise of 5G has not yet emerged. And so QCOM stock has been on a roller coaster ride. In the last 12 months the stock has climbed as high as $96 per share and as low as $58 per share. And right now it sits a couple of bucks above the midpoint at around $80 per share.
This is presenting investors with a conundrum: Because as promising as the stock looks, the specter of China is making this anything but a slam dunk.
All About 5G (Again)
To be sure, 5G technology was already taking its sweet time getting to market. Then the novel coronavirus shut down the world. This meant that investors waiting for QCOM stock decided to sell and wait for another buying opportunity.
Is now that time? It looks promising, but investors have heard this story before. If the time for 5G is now, then Qualcomm should be a beneficiary. But will that be enough?
Unless It’s Also About China
It’s no secret to those in the industry that Qualcomm has been eager to sign a contract with Huawei. The company is already trying to extend its relationship with Apple (NASDAQ:AAPL) for as long as it can. After years of litigation about licensing fees, Apple is committed to using Qualcomm as its sole provider of modems for Apple’s signature iPhones.
But Apple is rapidly developing cellular connectivity technology. Qualcomm probably has a few years left, but it will need another catalyst.
That’s where Huawei comes in. But there are two problems. First, Qualcomm is in its own battle over licensing fees with Huawei. And the second is that the Trump administration put Huawei on an Entity List. Companies on this list — deemed by the Commerce Department as engaging in activities contrary to U.S. national security or foreign policy interests — cannot receive offers from American companies without those companies having a special license.
Last year, Qualcomm got half of its revenue from mainland China and Hong Kong. That revenue is being threatened by Huawei’s inclusion on this Entity List. And even if that happens, Qualcomm may be placed on China’s own Entity List.
If it sounds messy, it is. The May 29 announcement that President Trump was going to hold a press conference about China erased all of the S&P 500 index’s gains for the day.
Date Before You Marry QCOM Stock
There are many reasons to buy QCOM stock. But for all those reasons, you would expect the stock to be higher than it has been over the last five years. There is a bullish case for China and it’s found in the promise of 5G technology. That alone should mean the stock should move higher.
But not everything that should happen does happen. And with the U.S.-China relationship looking to take center stage again, and in an election year no less, the stock may not be moving as high or as fast as investors would like.
Semiconductor stocks are among the first sectors to lead a market rally. QCOM stock has bounced nearly 30% off of its lows in the March selloff. Chip exchange-traded fund iShares PHLX Semiconductor ETF (NASDAQ:SOXX) is up more than 38% in the same period.
Some analysts suggest the stock could move as high as $90. That would be an additional gain of about 13% from its current level. QCOM stock is one to nibble at, but I believe you need to know more before going all in.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.