Qualcomm stock continues to lead the way as 5G networks blanket cities far faster than expected. The wireless chip giant also continues to expand from smartphone chips to data centers, connected cars and cloud gaming. Is QCOM stock a buy right now?
Qualcomm Stock Technical Analysis
Qualcomm (QCOM) cleared a 124.03 flat-base buy point in October. The chip giant went on to successfully test the 10-week line and is now holding above that support level, according to MarketSmith charts analysis. Shares are well extended, meaning they are not in buy range.
The relative strength line for Qualcomm stock has risen sharply since August, a bullish sign. A rising RS line shows a stock is outperforming the S&P 500. 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. The IBD Stock Checkup tool can help you find other chip stocks with superior composite ratings right now, such as Nvidia (NVDA) and AMD (AMD).
QCOM has an RS Rating of 90, above the 80 or higher you’d want to see. The iShares PHLX Semiconductor ETF (SOXX) holds Qualcomm with other chip stocks. The RS line for SOXX ETF is also rising bullishly.
Qualcomm earns an Accumulation/Distribution Rating of B+, which shows moderate buying by institutions in the past 13 weeks.
The chipmaker has strong institutional backing: As of September end, roughly 2,957 funds owned Qualcomm stock, up from 2,843 in June. Fifteen analysts rate QCOM a buy, seven have a hold and none has a sell, according to Zacks Investment Research.
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 stocks, and its SMR Rating scores sales growth, profit margins and return on equity.
On Nov. 4, the San Diego-based fabless chipmaker easily beat estimates for its fiscal fourth quarter. On a year-over-year basis, Qualcomm earnings rose 86% while revenue climbed 35%.
The company also guided the current quarter higher. “Our investments in 5G are coming to fruition and showing benefits in our licensing and product businesses,” Chief Executive Steve Mollenkopf said in a statement.
When Qualcomm next reports, Wall Street expects EPS to more than double to $2.10 as sales jump 63%, per Zacks. Analysts expect Qualcomm earnings per share to rise 69% in all of 2021, then increase a further 10% in 2022. The company returned to earnings growth in fiscal 2020 after several years of declines.
Qualcomm earnings slumped between 2014 and 2019, on company-specific and industry woes. But profit headwinds have eased as 5G wireless demand ramps up and after Qualcomm and key customer Apple (AAPL) settled a legal feud over patents.
Another big legal win came in August, as an appeals court ruled in Qualcomm’s favor in an antitrust lawsuit brought by the U.S. Federal Trade Commission. The FTC has sought a rehearing of the matter.
Among other fundamental metrics, Qualcomm’s annual pretax margin is 24% and the annual return on equity is 92%. Both are strong numbers.
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 essential 3G and 4G wireless patents, which produce licensing or royalty income. But Qualcomm’s chip business faces challenges as customers bring chips in-house, and 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 premium Samsung 5G devices, with chips for lower-end 5G phones on the way. But Qualcomm stock took a hit in December from reports that Apple plans to build its own mobile chips.
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 the success of 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 communications technology, Morningstar analysts say.
Qualcomm settled a two-year legal feud with Apple over patents in April 2019. It also settled a dispute with Chinese tech and telecom giant Huawei over patent licensing fees this year. But other legal, industry and macroeconomic challenges remain. Top automakers, including Tesla (TSLA), urged the FTC to appeal its Qualcomm antitrust defeat. They argue Qualcomm’s patent license agreements could escalate costs for “connected” cars, which use chips to connect to the internet.
Meanwhile, a new Joe Biden administration may not do much for tensions with China over Huawei technology and trade, reports says. Under President Trump, those issues hit chip stocks hard.
Chinese telecom giant Huawei responded to U.S. blacklisting last year by focusing more on its home market, where it’s gaining share. Huawei makes most of its own smartphone modems and its gains have hurt rivals Xiaomi and Oppo, which use Qualcomm chips. Huawei gets some modems from Qualcomm but only accounts for about 3% of Qualcomm’s revenue, according to research firm CFRA.
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.
As Qualcomm diversifies its business, it has allied with China’s Tencent (TCEHY) 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.
QCOM Stock And Rival Chip Stocks
Qualcomm belongs to the Fabless Semiconductor industry group, which ranks No. 46 out of 197 groups tracked by IBD. Within this group, QCOM stock ranks No. 5, trailing IBD 50 top growth stocks AMD and Nvidia.
Fabless chip companies hire contract foundries to make the chips they design. Other chip companies own their fabrication plants. But the chip industry is extremely cyclical.
Global chip sales turned south in late 2018 and fell 12% in 2019. They rallied early this year on signs of an industry recovery and on a U.S.-China trade deal, then sold off on coronavirus fears.
Analysts are still sizing what the coronavirus pandemic will mean for the chip sector and the global economy.
The deadly virus outbreak first halted production in China and then put global economies under strain. Despite the pandemic, the semiconductor industry will return to growth in 2020, according to World Semiconductor Trade Statistics. The group projects that chip sales will rise 5.1% to $433 billion this year. It sees growth accelerating to 8.4% in 2021. The spread of 5G wireless networks is a key growth driver.
Top stocks to buy or watch among fabless chip companies include AMD, Nvidia, Inphi (IPHI) 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 and continue to outperform.
Is Qualcomm Stock A Buy Right Now?
The 5G chip leader made a big earnings comeback, after years of declines. Qualcomm also boasts solid margins and return on equity.
It has overcome a big overhang on shares over legal disputes with Apple and Huawei, two of the world’s biggest smartphone makers. Meanwhile, 5G smartphones and 5G laptops are a huge opportunity.
Yet many other hurdles remain, including the FTC move for an antitrust rehearing, lingering China-U.S. tensions, and the coronavirus shock to the global economy.
From a technical perspective, QCOM stock has staged a strong coronavirus comeback and its RS line looks bullish. But shares are well extended from their latest breakout, and a new pattern has yet to emerge.
Bottom line: Qualcomm stock is not a buy right now. But the chip stock is one to watch as its fundamentals improve after a tough few years.
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