The spike higher in shares of Qualcomm (QCOM) Tuesday afternoon on an analyst’s prediction of future Apple (AAPL) 5G modem business would be a huge win for Qualcomm and come on top of its continuing efforts to expand to markets beyond handsets. First the news: In a series of tweets, closely followed Apple analyst Ming-Chi Kuo of TF International Securities wrote, in part, that his latest survey suggests the development of Apple’s in-house iPhone 5G modem chip “may have failed, so Qualcomm will remain exclusive supplier for 5G chips.” Both Qualcomm and Apple are Club holdings. Now for background: Apple has been trying to make its own chips for the iPhone and move away from using Qualcomm for a few years now. Not only would this create benefits from having more control over its supply chain, but the cost to Apple — if successful — would also be cheaper, leading to margin expansion. We’re already seeing these benefits play out with Apple’s MacBooks and the M1 chip. Earlier this month, Apple announced its next-generation M2 chip. If Kuo’s channel checks are accurate, Qualcomm would remain the exclusive supplier of 5G chips in the 2023 iPhone model. The TF International Securities analyst is known for covering parts of Apple’s supply chain and making accurate predictions. Neither Apple nor Qualcomm responded to CNBC’s requests for comment. Qualcomm has previously stated it expects to provide 20% of the modem chips needed for the 2023 iPhones. But if Apple can’t develop the chips internally then Qualcomm’s supply share would increase to 100%. What a windfall that would be to future earnings. That said, Qualcomm would not own that market share forever because you can’t bet against Apple developing its own modem chips in future generations. When Apple sets its sights on something, it historically delivers. However, we are not too concerned about the falloff of that Apple revenue stream after 2023. By then, Qualcomm’s growing Automotive and Internet of Things businesses will become a larger part of the pie and will pick up some of the slack. Bottom line: As Qualcomm’s non-handset revenue becomes a larger part of its overall business, we believe the stock will gain more credit for its diversification efforts, helping it break away from its traditional labeling as a handset chip supplier — which usually trade at a price-to-earnings multiple in the low teens — and move closer to a diversified semiconductor company multiple in the mid-to-high teens. Qualcomm currently trades at 10 times. (Jim Cramer’s Charitable Trust is long QCOM and AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
