Over the past five years, the story of Qualcomm (NASDAQ:QCOM) has been one of ups and downs. The month of October started as an “up” month for QCOM stock, although the past two weeks have seen a slide, followed by another rally. Up and down.
So far in 2020 — the second straight “up” year for Qualcomm — shareholders have watched their holdings increase in value by 60%. That’s a rate of growth that’s on pace to beat 2019’s 55% gain for QCOM.
QCOM stock has taken investors on a wild ride at times, with big gains and steep drops. Many of these big movements have been tied to the company’s various legal battles over royalties. And over the past two years, things have largely been going Qualcomm’s way.
In addition, the hype over 5G is helping to drive Qualcomm’s growth. After two “up” years, this B-rated stock is currently near all-time highs. But I don’t think it’s close to running out of gas quite yet.
The Huawei Effect
Qualcomm’s performance in 2020 got a huge boost in late July when the company inked a licensing deal with China’s Huawei. After a lengthy legal battle, Huwaei agreed to pay Qualcomm $1.8 billion to cover fees for previous use of the company’s patented technology. In addition, Huawei agreed to a multiyear licensing deal that will see Qualcomm collect royalty fees going forward.
When news of the deal broke on July 29, QCOM stock jumped 15% in a single session.
The entire episode feels like a replay of Qualcomm’s 2019 licensing settlement that saw it collect a $4.5 billion payout and a multi-year deal to put Qualcomm modems in iPhones. QCOM stock jumped 23% at that time, kickstarting its 2019 run.
Huawei has also been a gift to Qualcomm shareholders outside of its direct relationship with the company. In mid-August, the U.S. Commerce Department announced expanded restrictions against Huawei technology. The move prevented Huawei from bringing its technology into the country via third party products, a loophole that previous sanctions had left open. Anything that blocks Huawei can be of potential benefit to Qualcomm, as an alternate supplier.
As a result of the new measures, QCOM stock was on the receiving end of analyst upgrades. Among them was Wells Fargo Securities’ Gary Mobley, who raised his price target from $90 to $120, writing:
Our change in rating today is more so a function of our belief QCOM could be dealt a gift from the newest few rounds of US Commerce Dept.’s export restrictions impacting Huawei, something that may directly or indirectly help QCOM.
Of course, in the two months since then, QCOM has blown past that price target.
Bottom Line on QCOM Stock
Qualcomm was a pick in my “7 Tech Stocks to Buy for October Opportunities After September Sell-Off” feature. At the time of publication, shares were worth $117.68. Now they’re trading at over $126. That’s a return of around 7%. Not bad for three weeks.
QCOM stock isn’t without risk. We saw that when Qualcomm reported third-quarter revenue that was half the levels of the previous year. However, that did nothing to slow QCOM’s growth in 2020, and there are plenty of catalysts for continued growth for the rest of the year and into the next several years.
New 5G iPhones are selling even better than expected during pre-orders, which bodes well for the company. The deal to supply modems for the iPhone will run out in five years, but that is pretty far down the road — and there is a provision for a two-year extension.
Qualcomm is also having increasing success in supplying processors for laptops, as PC makers look to take advantage of the 5G revolution. And its Snapdragon chips remain the processors of choice for Android smartphones.
Even at its current $126 level, an investment in Qualcomm shares is likely to pay off with long-term growth.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.