In the last month, Qualcomm (NASDAQ:QCOM) tried to break above the $89 level but faced plenty of resistance. Market trading volume and a lack of near-term catalysts held the stock back.
Even though valuations for this communications equipment supplier are reasonable, investors are waiting for fundamental news. What events ahead will drive the price of Qualcomm stock higher?
Qualcomm Processors for Laptops
Qualcomm’s inexpensive processors for laptops is a counter-intuitive development. Instead of staying with its core competency of smartphone chips, the company wants to expand into ARM-powered budget laptops. Per TechTarget, an “ARM processor is one of a family of CPUs based on the RISC (reduced instruction set computer) architecture developed by Advanced RISC Machines.”
Qualcomm’s Snapdragon 7c and 8c are powerful enough to run Microsoft’s (NASDAQ:MSFT) Windows operating system. So why enter the budget laptop market?
The company may want to keep its technology relevant in both the smartphone and the laptop PC market. Should some hybrid version of these gadgets become a fad in the future, Qualcomm would be ready.
Qualcomm also keeps its intellectual property and technology functional beyond the mobile operating system environment. And since Microsoft’s software will be around for years, diversifying into the laptop space makes sense.
Apple 5G Phone
To build the most reliable and fastest communications technology in iPhones, Apple (NASDAQ:AAPL) needs Qualcomm’s superior modem chip technology. So, when Apple eventually releases an iPhone 5G, it will reportedly use Qualcomm’s X55 5G modem. Combined with a 5-nanometer process Apple A14 Bionic chip, Apple will have a compelling 5G solution.
Apple managed to reverse the 2018-2019 decline in iPhone unit sales with the iPhone 11 series, but it will need Qualcomm-powered chips to take market share from Android phone suppliers.
Android 5G Phone
As a neutral player in the smartphone market, Qualcomm is not relying solely on Apple for chip sales strength. It unveiled a new Snapdragon 865 and the Snapdragon 865 chipset that supports 5G in Dec. 2019. It dubbed the X55 5G Modem-RF as “the world’s most advanced 5G platform.”
Investors may expect the strong initial launch of 5G will drive earnings per share higher for QCOM stock. While the stock backed down from the $89-$90 level, it may break out in 2020.
QCOM Earnings Report
Qualcomm’s earnings report, scheduled for Feb. 5 after the market closes, will give investors insight on the company’s product release roadmap for the year. It might even raise its guidance for the next quarter and ahead of CES (Computer Electronics Show) 2020. The CES event itself, on Jan. 7 – Jan. 10, might excite markets to buy QCOM stock as companies hint of what is to come for smartphones.
Still, Mobile World Congress follows around one month later. The Qualcomm stock price may respond favorably between now and in February as guests talk about 5G. Samsung and Apple will make announcements separate from the event, giving QCOM stock another reason to rally.
Valuation and Your Takeaway
Chip stocks are pulling back in recent days, which investors should expect. The sector rewarded investors handsomely last year already, so profit-taking typically follows. The most bearish investor may forecast weak future cash flow from the business. This would imply a fair value of below $50 (per SimplyWall.St). Conversely, if Qualcomm’s revenue does not fall in the next decade, the downside is limited to around $82 a share (per finbox.io).
Market sentiment is still positive, especially for the technology sector. Qualcomm’s stock should hold up in the near-term. Any pull-back creates an entry point for investors.
As of this writing, the author did not hold a position in any of the aforementioned securities.