Why Is Qualcomm (QCOM) Stock Falling 4% Today?

  • Shares of Qualcomm (QCOM) reeled from Friday’s news of restricted commerce with China.
  • The federal government imposed export restrictions on advanced chips to curb China’s military.
  • QCOM stock depends heavily on China-based demand.
QCOM stock - Why Is Qualcomm (QCOM) Stock Falling 4% Today?

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Still reeling from Friday’s announcement regarding technology exports to China, Qualcomm (NASDAQ:QCOM) incurred significant red ink on Tuesday afternoon. In the morning session, QCOM stock dropped around 4% of market value and is hovering around 3% down in afternoon trading. New export restrictions on advanced semiconductors and chip-manufacturing equipment — a bid to curb China’s military power — bring a dark cloud over China-dependent Qualcomm.

According to the Wall Street Journal, the “rules will require U.S. chip makers to obtain a license from the Commerce Department to export certain chips used in advanced artificial-intelligence calculations and supercomputing—crucial technologies for modern weapons systems, senior administration officials said.”

The WSJ notes that the U.S. government already requires licenses for exports involving advanced technologies to Chinese entities that pose threats against national security interests. “Friday’s move expands that to include exports of crucial cutting-edge chips and equipment that can’t be obtained elsewhere. The rules will also allow the U.S. to block foreign-made chips that are manufactured with U.S. technology, the officials said.”

Over the trailing five days, QCOM stock dropped around 8% in equity value. In large part, the volatility stems from the aggressiveness of the restrictions. Per the WSJ, they represent “some of the broadest the U.S. has ever enacted against China’s chip industry, veering from previous actions that often targeted individual companies and a narrower subset of technology.”

Significant Headwind Against QCOM Stock

To be fair, QCOM stock does not represent the exclusive recipient of downside action. Other tech giants, including Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT) suffered similar or even steeper losses. Nevertheless, plenty of attention focuses on Qualcomm because of its exposure to China-based demand.

Specifically, following the conclusion of fiscal year 2021, Qualcomm generated $33.6 billion in revenue. However, within this tally, $22.5 billion originated from China and Hong Kong. That means two-thirds of Qualcomm’s sales depend on China/Hong Kong, imposing significant threats to QCOM stock.

Interestingly, while investment analytics resources Gurufocus labels Nvidia and Microsoft as undervalued opportunities, it warns investors that — as of this writing — QCOM stock represents a possible value trap. Put another way, speculating on Qualcomm’s implosion — it’s down 40% so far this year — could lead to worse losses.

In all fairness, investors don’t know yet how much the China-focused restrictions will impact Qualcomm’s financials. Nevertheless, risk-averse market participants may want to wait until the company’s next earnings report — estimated for a Nov. 2 release — for greater clarity on QCOM stock.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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