Warning: Stay Away From Qualcomm Stock Before It Falls Back


  • With Qualcomm (QCOM) right now, recent AI news is helping to counter the latest souring of sentiment for chip stocks.
  • Those bullish on the struggling chip maker’s supposed ‘AI catalysts’ may believe that this rally may continue.
  • However, there’s no need to hastily move into a QCOM stock position, given that non-AI issues could again resume knocking shares lower.
QCOM stock - Warning: Stay Away From Qualcomm Stock Before It Falls Back

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Based on Qualcomm’s (NASDAQ:QCOM) recent price performance, it is clear that growing optimism is helping to counter more negative aspects to the QCOM stock story. The mobile chip maker’s possible generative artificial intelligence catalysts excites some investors.

As I discussed previously, Qualcomm’s management has been touting how it is well-positioned to benefit from a likely jump in demand for AI-capable smartphone and internet of things (or IoT) chips.

I’ll admit that Qualcomm’s recent AI-related news does sound promising. However, whether this news truly counters the negatives at play with the company right now is debatable.

Recent bleak outlook from another major semiconductor company, Taiwan Semiconductor (NYSE:TSM) suggests more trouble ahead for the sector.

If the company’s non-AI segments continue to face headwinds, and if another major concern worsens, the stock could easily cough back these gains, as quickly as it has accrued them in recent weeks.

QCOM Stock: Why the TSM News Matters

Qualcomm and Taiwan Semiconductor are both chip companies, yet they are not in the same segment of the chip space.

Whereas Taiwan Semiconductor is primarily a fabricator of chips for “fabless” electronics and chip companies, Qualcomm is a “fabless” chip maker itself, and in fact the company outsources some of its production to Taiwan Semiconductor.

Still, the aforementioned bad news for TSM suggests bad news ahead for QCOM stock. The global chip foundry’s worse-than-expected full year outlook points to continued soft demand. “Fabless” clients like Qualcomm should experience continued soft demand among its customer base.

Hence, just as Taiwan Semiconductor did in its earnings release and guidance, when Qualcomm does the same on Aug. 2, it too will disappoint.

But besides the possibility of Qualcomm delivering poor guidance (just like it did last quarter), there’s more reason why now is not the time to buy.

Investors May Want More AI Proof

Qualcomm could also provide promising updates about its nascent AI operations, in particular the aforementioned AI-related news behind the latest boost for QCOM stock.

That would be Qualcomm’s recently announced partnership with Meta Platforms (NASDAQ:META).

This partnership entails using Qualcomm’s chips to run Meta’s AI on smartphones and PCs. Yet even if Qualcomm has more to say about this potential breakthrough of a deal, I’m doubtful this will be enough to fully shake off the market’s “show me” stance for QCOM.

Investors may be reacting positively to Qualcomm’s initial signs of AI progress, but pretty soon, the fact this partnership will take time to produce actual financial results will finally sink in.

The company’s non-AI headwinds will become top of mind again, as it’ll be clear that AI alone will not counter them for a while.

Notice I said “headwinds,” not headwind. Qualcomm is dealing with other issues besides the current slump in mobile chip demand: namely, the rising tensions between the U.S. and China. As I’ve pointed out before, this could pose a major problem for the company.

Qualcomm is Likely to Reverse Course

AI has been a game changer for the tech sector, but it may not necessarily be a complete game-changer for Qualcomm. For QCOM to sustain its latest rally, there needs to be a change in the overall “story.”

More signs need to emerge that smartphone demand is normalizing, especially in China. This will point to a rebound for Qualcomm’s core business. The tension between the U.S. and China also needs to cool down.

Even if this is only a slight detente, it will still help assuage the market’s China-related worries about the company.

If both play out, coupled with more AI progress, Qualcomm could begin making a strong comeback.

Until then, however, as non-AI headwinds persist, shares could soon fall back onto a downward trajectory. With this, there is no need to hastily move into a QCOM stock position.

QCOM stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier had a long position in META. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media, https://investorplace.com/market360/2023/07/qcom-stock-will-likely-drop-until-whole-story-improves/.

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