Qualcomm stock plans to diversify its business from smartphones as key customer Apple (AAPL) transitions to its own iPhone 5G chips. The wireless chip giant eyes opportunity in the emerging metaverse, while it sees supply shortages easing. Is QCOM stock a buy right now?
On Dec. 13, JPMorgan analyst Samik Chatterjee named the stock a top pick for 2022, citing the easing of supply-chain pressures and Qualcomm’s product diversification.
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Qualcomm Stock Technical Analysis
Shares of Qualcomm (QCOM) topped a 168.04 buy point off a 40-week consolidation in November, according to MarketSmith chart analysis. QCOM stock rallied 1.6% to 179.42 Dec. 21. It remains extended, meaning shares are not in buy range. It also remains above a rising 10-week line, while the broader market struggles.
Qualcomm stock consolidated amid a report that Apple could make its own iPhone modem chips, cutting out Qualcomm.
QCOM stock surged in November on earnings and after Qualcomm laid out its Apple-light future. On Dec. 15, Qualcomm hit a new high, but then reversed lower.
The relative strength line has moved sideways in the past month. It rallied strongly for most of 2020, then slid hard. A rising RS line shows outperformance vs. the S&P 500 index. It is the blue line in the chart shown.
QCOM stock owns an IBD Composite Rating of 98 out of 99. In other words, it’s outperforming 98% of all stocks based on combined fundamental and technical metrics.
Investors generally should focus on stocks with CRs above 90 or 95.
And QCOM has an RS Rating of 94, well above the 80 or higher you’d want to see. The iShares PHLX Semiconductor ETF (SOXX) holds Qualcomm and other chip stocks.
Qualcomm earns a best-possible Accumulation/Distribution Rating of B-, which shows moderate buying by big institutions in the past 13 weeks.
As of September, 3,422 funds owned Qualcomm stock. The chip stock boasts eight quarters of rising fund ownership, according to the IBD Stock Checkup tool.
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Qualcomm Earnings And Fundamental Analysis
Qualcomm stock earns an EPS Rating of 84 out of a best-possible 99, and its SMR Rating is an A, on a scale of A to a worst E. The EPS rating scores a company’s earnings growth vs. other companies, and its SMR Rating scores sales growth, profit margins and return on equity.
On Nov. 4, the San Diego-based fabless chipmaker easily beat earnings estimates for its fiscal fourth quarter. On a year-over-year basis, Qualcomm earnings leaped 81% while sales jumped 43%, according to FactSet. And it gave bullish guidance for the current quarter.
Then on Nov. 16, CEO Cristiano Amon said QCOM’s total addressable market will increase from $100 billion today to $700 billion in the next decade. The growth comes from expansion into chips for automobiles and Internet of Things devices for consumer and industrial applications, while reducing reliance on Apple.
CEO Amon now expects his company’s supply issues to be materially better by end of year, even meeting demand by the second half of 2022. Earlier, Qualcomm expected to be constrained on chips into early 2022. The shortages affected products for phones, IoT devices and automobiles.
Analysts expect Qualcomm earnings per share to grow 21% in 2022 as sales increase 15%, FactSet says. Both earnings and sales are seen growing further in 2023, but at a single-digit pace. The company returned to growth in 2020 after several years of declines.
In recent years, Qualcomm earnings slumped on company-specific and industry woes. Profit headwinds eased as 5G wireless ramped up. Moreover, Apple and Huawei, the Chinese telecom giant, both returned as customers, after QCOM settled legal feuds over patents and licensing payments.
In March, the U.S. abandoned a four-year antitrust battle against Qualcomm.
Out of 31 Wall Street analysts, 21 rate QCOM stock a buy and 10 have a hold, while no one has a sell, according to FactSet.
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Qualcomm Stock News: Apple, Huawei, Tencent
Qualcomm has two main revenue streams: It makes integrated circuits and system software for device makers. It also holds wireless patents, which produce licensing or royalty income.
But Qualcomm’s chip business faces challenges as customers bring chips in-house. Its licensing business faces scrutiny in the U.S. and across the globe.
The equipment & services business accounts for 81% of total revenue and licensing for the rest. While smaller in size, licensing is more profitable and has a bigger competitive advantage.
Qualcomm’s 5G chips power the latest Apple (AAPL) iPhones. They also power Android devices. Reports of Apple working on its own 5G modem have repeatedly hit QCOM stock.
According to Qualcomm management, 5G networks are being built far faster than expected. They will enable ultrafast downloads and enable things like connected factories.
Baseband chips supplied by Qualcomm enabled earlier iPhones and the smartphone revolution. In fact, Qualcomm is the world’s biggest supplier of mobile phone chips. But it is, first and foremost, “the steward of patents” for wireless technology, according to Morningstar.
In addition to smartphones, Qualcomm chips will power the world’s first 5G personal computer. The 5G chips and devices will eventually power the Internet of Things, self-driving cars and augmented reality apps.
Qualcomm and China’s Tencent (TCEHY) have partnered on mobile gaming devices. It’s a big win for the U.S. chipmaker: Mobile gaming, powered by 5G cellular services, should support real-time and multiplayer experiences.
Now Qualcomm, like Nvidia, sees a growth opportunity in the metaverse, an immersive, next-gen internet platform.
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QCOM Stock And Rival Chip Stocks
Qualcomm belongs to the Fabless Semiconductor industry group, which has moved up to No. 1 out of 197 groups tracked by IBD.
Fabless chip companies hire contract foundries, such as Taiwan Semiconductor (TSM), to make the chips they design. Other chip companies own their fabrication plants. But the chip industry is extremely cyclical.
Top stocks to buy or watch among fabless chip companies include AMD (AMD), Nvidia (NVDA), Monolithic Power Systems (MPWR) and Lattice Semiconductor (LSCC). Several of those make chips for data centers, which are in high demand as internet use booms during the work-at-home push.
AMD stock, a winner in 2019, and Nvidia stock held up well in 2020’s coronavirus correction. Both AMD and Nvidia have been big winners in 2021.
Chip stocks, such as NVDA and AMD, often earn a spot on the IBD Leaderboard, a curated list of stocks with the most potential for big gains. They also often appear on the IBD 50 list of top growth stocks.
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Is Qualcomm Stock A Buy Right Now?
The 5G chip leader made a big earnings comeback, after years of declines. While Qualcomm confronted a semiconductor crisis, it sees shortages easing soon.
Apple and Huawei, two of the world’s biggest smartphone makers, are back as customers. And the company has scored a key antitrust win tied to cellphone chips. For Qualcomm, 5G smartphones and computers spell a huge opportunity. It’s also tapping new areas of growth, such as automotive, IoT chips and the metaverse.
From a technical perspective, QCOM stock is beyond range from a 168.04 buy point, backed by a strong RS line.
Bottom line: Qualcomm stock is not a buy right now. But it’s one to watch as new opportunities emerge and fundamentals improve after a tough few years.
To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD research content. We also have ideas for those looking for top large-cap stocks to buy right now.
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