Long-term investors often consider Qualcomm (QCOM Stock) a sound investment. Because of its extensive wireless patent portfolio, Qualcomm is entitled to a share of every smartphone sold worldwide, even ones that don’t use the company’s processing chips.
Qualcomm’s stock has climbed nearly 160 percent over the previous five years, and its total return has increased by about 200 percent after reinvested dividends have been taken into account. At most, the S&P 500 saw a return of 110 percent in that time frame.
However, as the smartphone market matures and the world struggles with an ongoing chip scarcity, is Qualcomm still a safe stock to buy? If you’re still undecided, here are five reasons why you should buy Qualcomm and one reason why you should sell it.
Qualcomm Stock News
Qualcomm develops integrated circuits and system software for device manufacturers. In addition, the company owns wireless patents that generate licensing or royalty income.
However, Qualcomm’s chip division is under pressure from clients who are developing their own devices. In the United States and around the world, the licensing business of this company is being scrutinized.
However, licensing is more profitable and offers a greater competitive advantage, despite its smaller size.
In the most recent Apple (AAPL) iPhones, 5G chips from Qualcomm (QCOM) are used. Android devices can also be powered by them. Apple’s 5G modem rumors have regularly dragged down QCOM stock.
5G networks, a new worldwide wireless standard, will allow for rapid downloads and enable things like connected factories, among other things.
Qualcomm’s baseband chips ushered in the smartphone era. Qualcomm is, in fact, the world’s largest semiconductor manufacturer. According to Morningstar, though, it is first and foremost “the guardian of patents” for wireless technologies.
Besides smartphones, Qualcomm chips will power the world’s first 5G PC. The Internet of Things, self-driving cars, and augmented reality apps will all be powered by 5G chips and devices.
Reasons to Invest in QCOM Stock
1. Gains in Market Share
After Qualcomm lost its position as the world’s top supplier of mobile systems on chips (SoC) in 2020, Taiwanese chipmaker MediaTek took the top spot. SoC chips combine a CPU, GPU, and modem into a single chip.
Chinese OEMs increased their orders for MediaTek’s SoCs as the trade war restricted their access to Qualcomm’s Snapdragon SoCs in the lower- to mid-range market.
In the fourth quarter of 2021, Counterpoint Research found that Qualcomm’s market share had risen seven percentage points year over year to 30 percent, while MediaTek’s had dropped from 37 percent to 33 percent.
2. Coping With the Shortage of Chips
Because Qualcomm was able to outmaneuver MediaTek and other smaller chipmakers during the global chip shortage, the company saw an increase in market share.
According to Counterpoint, Qualcomm was able to improve its market share against MediaTek by prioritizing higher-end Snapdragon SoCs; which generate higher revenues with less risk of chip shortage.
This has prevented other fabless chipmakers from being hampered by supply chain bottlenecks because Qualcomm chose to source critical goods from many vendors.
3. Steady Growth Rates
Because of its size, Qualcomm is able to achieve growth that is both steady and predictable. Fiscal 2021, which ended in September, had a 55 percent increase in adjusted revenue to $33.5 billion, and analysts expect a 27 percent increase in fiscal 2022.
As a result, Wall Street anticipates the company’s adjusted earnings per share (EPS) will have increased by more than twofold in 2021.
4. Shareholder-friendly Measures
With $3 billion in dividends and $3.4 billion in share buybacks, Qualcomm returned 74% of its free cash flow (FCF) to its stockholders last year.
Qualcomm has been able to pay dividends for nearly two decades because of these shareholder-friendly initiatives. More than a third of its shares have been retired over the past decade.
5. A Reasonable Dividend and Modest Valuation
A 14-times-or-less multiple of Qualcomm’s projected earnings is a bargain. In contrast, Intel (INTC -1.75 percent ) has a projected price-to-earnings ratio of 15 despite its far slower growth. A projected earnings multiple of 21 times for Texas Instruments (TXN, -0.08%) reflects its slower growth in analog and embedded chips.
Additionally, Qualcomm provides a 1.9 percent dividend return in the future. That’s lower than Intel’s 3% yield and TI’s 2% yield; but Qualcomm has achieved a better total return than both chipmakers over the past five years.
Reason to Sell QCOM Stock
While Qualcomm’s near-term growth is healthy, analysts predict revenue and earnings to expand by only 8% and 7% in fiscal 2023 as the smartphone upgrade cycle cools again. The decline could be exacerbated by inflation and other macroeconomic factors.
Analysts are beginning to voice their concerns about this. Since the beginning of the year, several “important Chinese Android companies,” according to TF International Securities analyst Ming-Chi Kuo, have decreased their orders by “around 170 million units” (about 20% of their original shipment projections), which will harm both MediaTek and Qualcomm. Qualcomm and Apple were both removed from the positive “Analyst Focus List” of JPMorgan’s investment firm due to fears about a broader downturn in consumer spending.
QCOM Stock: Is It A Good Time To Invest?
After a long period of setbacks, the 5G chip leader has made a major recovery. Qualcomm has been dealing with a shortage of semiconductors, but the company claims that this is improving.
Apple and Huawei, two of the largest smartphone manufacturers in the world, have returned as clients. In addition, the business has won a significant antitrust case involving smartphone chip technology. Qualcomm sees great potential in the development of 5G devices. New growth areas, such as the automobile, the Internet of Things (IoT), and the metaverse, are also being tapped. Qualcomm, on the other hand, is a member of a sluggish sector.
QCOM’s stock needs improvement from a technical standpoint. As of this writing, it is trading deep below the 50-day support level, with a mediocre RS line to show for it. Keep an eye on this page for information about a new purchase point.
The bottom conclusion is that Qualcomm stock is not a good investment at this point in time. After a rough few years, it’s one to keep an eye on as fresh chances arise and the fundamentals improve.