Qualcomm stock continues to lead the way as 5G networks blanket cities but key customer Apple (AAPL) eyes its own iPhone 5G chip. The wireless chip giant also sees the global semiconductor shortage persisting into 2022. Is QCOM stock a buy right now?
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Qualcomm Stock Technical Analysis
Shares of Qualcomm (QCOM) eye a 152.38 cup-with-handle buy point , according to MarketSmith chart analysis. The lengthy , 30-week consolidation formed largely below the 50-day moving average, which is a negative.
As of Aug. 23, Qualcomm stock sat 6% below the entry, meaning it’s far from a proper buying zone. QCOM stock consolidated amid a report that Apple could make its own iPhone modem chips, cutting out Qualcomm.
The relative strength line for Qualcomm stock is lagging. It rallied strongly for most of 2020. 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 83 out of 99. In other words, it’s outperforming 83% of all stocks based on combined fundamental and technical metrics.
Investors generally should focus on stocks with CRs above 90 or 95.
QCOM has an RS Rating of 52, well below the 80 or higher you’d want to see. The iShares PHLX Semiconductor ETF (SOXX) holds Qualcomm and other chip stocks.
Qualcomm earns an Accumulation/Distribution Rating of D+, which shows moderate selling by institutions in the past 13 weeks.
Still, the chipmaker boasts strong institutional backing. As of June, 3,398 funds owned Qualcomm stock, according to the IBD Stock Checkup tool.
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Qualcomm Earnings And Fundamental Analysis
Qualcomm stock has an EPS Rating of 77 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 July 29, the San Diego-based fabless chipmaker easily beat Wall Street’s targets for its fiscal third quarter. On a year-over-year basis, Qualcomm earnings rocketed 123% while sales jumped 65%. Qualcomm also guided higher for the current quarter.
CFO Akash Palkhiwala said he expects Qualcomm is “going to be constrained into early 2022.” The shortages affected products for phones, IoT devices and automobiles. “By the time we get to the second half, we’ll be in a better place than we are,” he added.
Analysts expect Qualcomm earnings per share to jump 112% in all of fiscal 2021, according to FactSet. The company returned to growth in 2020 after several years of declines. Sales are seen climbing 52% for the full year.
In recent years, Qualcomm earnings slumped on company-specific and industry woes. Profit headwinds have eased as 5G wireless ramps up. Moreover, Apple and Chinese telecom giant Huawei returned as customers, after QCOM settled legal feuds over patents and licensing payments.
In March, the U.S. abandoned a four-year antitrust case accusing Qualcomm of abusing its dominance in smartphone chips.
Out of 28 Wall Street analysts, 18 rate QCOM stock a buy and 10 have a hold, 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.
In fiscal 2020, equipment & services accounted for 69% 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 Apple (AAPL) iPhone 12. 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.
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QCOM Stock And Rival Chip Stocks
Qualcomm belongs to the Fabless Semiconductor industry group, which ranks a solid No. 52 out of 197 groups tracked by IBD. Within its group, QCOM stock ranks No. 15 while Nvidia and AMD are among the top five stocks.
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), Inphi (IPHI), 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 the coronavirus correction. They were big winners for much of 2020.
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 confronts a semiconductor crisis, it expects shortages to ease next year.
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 and IoT chips.
From a technical perspective, QCOM stock has a 152.38 buy point but is still well below the entry. Its RS line is uninspiring.
Bottom line: Qualcomm stock is not a buy right now. But the chip stock is one to watch as 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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