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 for several months more. Is QCOM stock a buy right now?
Qualcomm Stock Technical Analysis
Shares of Qualcomm (QCOM) continue to struggle after a failed January breakout past 161.17, according to MarketSmith chart analysis. In fact, Qualcomm stock is well off its 52-week high and also below the 10-week line. It could be a while before a new buy point emerges.
QCOM stock is taking a fresh beating in May after a report that Apple could make its own iPhone modem chips, cutting out Qualcomm. “As Android sales in the high-end 5G phone market are sluggish, Qualcomm will be forced to compete in the low-end market to compensate for Apple’s order loss,” TF International Securities analyst Ming-Chi Kuo wrote May 10.
The relative strength line for Qualcomm stock is near a year-long low. 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 59 out of 99. In other words, it’s outperforming 59% of all stocks based on combined fundamental and technical metrics.
Investors generally should focus on stocks with CRs above 90 or 95.
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 March, 3,322 funds owned Qualcomm stock. In fact, Qualcomm shows six quarters of rising fund ownership, according to the IBD Stock Checkup tool.
Thirteen analysts rate QCOM a buy, eight 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 78 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 April 28, the San Diego-based fabless chipmaker beat earnings and revenue estimates for its fiscal second quarter. On a year-over-year basis, Qualcomm earnings soared 116% while sales increased 52%. By segment, revenue rose 53% for handset chips and 71% for Internet of Things. It rose roughly 40% each for the smaller radio-frequency and automotive chip segments. Qualcomm also guided higher for the current quarter.
More notably, incoming CEO Cristiano Amon backed an earlier view that the semiconductor shortage could last until the end of this year. The shortages affected “all of our vectors,” including products for phones, IoT devices and automobiles, CFO Akash Palkhiwala said on an earnings call. Fiscal Q2 would have been “much better off” without the supply constraints, which should materially improve by year end, Qualcomm said.
Analysts expect Qualcomm earnings per share to rise 86% in all of fiscal 2021, and a further 10% in 2022, according to Zacks Investment Research. The company returned to growth in 2020 after several years of declines. Sales are seen climbing 37% in 2021 and 10% in 2022.
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.
Among other fundamental metrics, Qualcomm’s annual pretax margin is 24% and the annual return on equity is 92%. Both are strong numbers.
In March, the U.S. abandoned a four-year antitrust case accusing Qualcomm of abusing its dominance in smartphone chips.
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, including cheaper 5G phones. 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 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 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.
As these new growth drivers pick up steam, a major leadership change is coming. After 26 years with Qualcomm, CEO Steve Mollenkopf retires in June, with President Cristiano Amon set to replace him.
QCOM Stock And Rival Chip Stocks
Qualcomm belongs to the Fabless Semiconductor industry group, which ranks a poor No. 185 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), 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.
Qualcomm objects to Nvidia’s proposed $40 billion acquisition of British chip designer Arm. The takeover is under scrutiny by an independent U.K. competition authority.
Is Qualcomm Stock A Buy Right Now?
The 5G chip leader made a big earnings comeback, after years of declines. Qualcomm boasts solid margins and return on equity.
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 spell a huge opportunity. It’s also tapping new areas of growth, such as automotive and IoT chips.
Qualcomm confronts a semiconductor crisis, but expects significant improvement in the situation by end of year.
From a technical perspective, QCOM stock’s continues to struggle after a failed breakout early this year. With QCOM below its 50- and 200-day lines, there’s no clear buy point in sight. It belongs to a lagging industry group and its own RS line is falling.
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.
YOU MAY ALSO LIKE:
Business News Governmental News Finance News