Qualcomm (NASDAQ:QCOM) stock has been very, very good to me.
After having written about it for years, I finally bought some in April when shares were $76. Now QCOM stock is more than $128. I also have a “free” share thanks to dividend reinvestment.
It didn’t take a genius to see Qualcomm rising. Its legal troubles are now behind it, and 5G means more equipment sales, thus more modem sales. The only question is whether buying more makes sense.
Most tech stocks look overvalued right now and Qualcomm is no exception. It has a price-earnings ratio of nearly 55x, and the dividend of 65 cents, while backed by earnings, yields just 2%. It is also making some risky moves, competing with its customers. Is it time, as they say, to take something off the table?
After all, there are new business risks.
Qualcomm’s New Moves
CEO Steve Mollenkopf feels he has no choice but to compete in the phone business.
While he beat Apple (NASDAQ:AAPL) in court on his policy of tying patent rights to chips, and the iPhone 12 contains Qualcomm chips, Cupertino is still vowing revenge. Apple has bought what was left of Intel’s (NASDAQ:INTC) modem business. As with processors, it plans to be its own supplier there, too.
So Qualcomm is working with Asus (OTCMKTS:ASUUY), the large Taiwanese OEM, on a “gaming” phone. This could be a big win in the new era of “cloud gaming” with Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and other cloud companies taking more of the processing load.
But even a win could be a draw here. Not only is Apple on its way out the door, but gaming chip giant Nvidia (NASDAQ:NVDA) may start making its own phone processors, once it finishes buying ARM Holdings from Softbank (OTCMKTS:SFTBY).
Qualcomm’s Big Win
Qualcomm’s problems are years away from coming to fruition, however. In the near term all is good.
Analysts expect Qualcomm to be a big winner from the new iPhone. To stay ahead Qualcomm is working with a smaller San Diego company called Truepic to begin embedding photo verification into new chips starting next year.
The idea of the “secure” mode is that each photo will have a “digital signature” proving it’s real, with the time it was taken and location. As “deep fake” technology grows, and bad actors manipulate existing metadata on photo files, this could quickly become a must-have feature.
Then there is 5G itself. While it’s being sold by phone companies as a simple upgrade, it’s not. That’s because 5G brings a host of very low and very high frequencies into the cellular mainstream. It’s not all about speed, but new applications that can be built into chips to control factory equipment, home appliances, cars, anything that depends upon measurements and acting on measurement. It’s 5G that will make the Machine Internet a reality, and Qualcomm is going to be at the center of it.
The Bottom Line
I buy stocks for the long run, with a minimum three-to-five-year time horizon. I don’t try to time the market. I let time do my work.
Six months before I bought my shares, with stock averages at record highs, I wrote that Qualcomm was at the center of the tech universe. In April, I wrote how it was working on things like mixed reality and smart displays.
Before beating Apple, Qualcomm was a law firm posing as a tech company. Its future was defined by its positions in court, and what lawyers thought of it. That’s no longer the case. Long-term investors can buy QCOM stock now and let time work its magic.
At the time of publication, Dana Blankenhorn had long positions in QCOM, NVDA, INTC and AAPL.
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 firstname.lastname@example.org or follow him on Twitter at @danablankenhorn.