Qualcomm Continues March Higher (NASDAQ: QCOM)

From February 2019 through January 2020, shares of Qualcomm NASDAQ: QCOM rallied about 90%, driven largely by the upcoming 5G rollout and investor’s optimism about Qualcomm’s ability to capture a large market share. However, the stock received a violent and sudden 35% haircut in the following weeks and many on Wall Street walked away from risk-on names to bunker down in gold and bonds.

But as equity markets have continued their stunning recovery from March’s lows, Qualcomm stock has been quick to come back into favor, and shares are now almost back at January levels. They’re up a full 45% from Q1’s bottom and look hungry enough to fully reclaim last quarter’s damage over the next few weeks. 

They were one of the first companies to report earnings from the fiscal first quarter on April 29 and proved to be a good bellwether for many tech stocks and their investors. Many breathed a sigh of relief as the damage was nothing like previously feared.

Mid-virus Earnings

The San Diego based semiconductor and chipmaker managed to beat analyst expectations for EPS and revenue, with the latter showing 6% growth year on year. While the coronavirus pandemic caused a hefty 21% drop in demand for their 3G/4G/5G headsets compared to the previous year, other parts of the business remained solid and helped them weather the blow.

Management saw fit to increase their dividend by 5% which, at a time when many other companies are pausing theirs completely, struck a strong positive tone that investors weren’t slow to pick up on. For investors considering getting involved some of these days, this means that the $95 billion tech company is only trading at 13x forward earnings while also offering a 3.35% dividend.

5G Still Hot

While COVID-19 has undoubtedly delayed shipping and demand plans for 5G devices, Qualcomm remains the chip vendor of choice for the likes of Apple NASDAQ: AAPL and their 5G iPhone. This comes after years of tension and disagreement between the two companies that ended in high profile court cases and Apple going elsewhere for chips in their 3G and 4G phones. But by all accounts the relationship has been mended and they’re ready to hit the ground running together once 5G launches proper. And that might not be too far away.

The infrastructure continues to be built and turned on - just last month, Verizon switched on its 5G networks in San Diego. This was the 35th city in the country that they’ve now started extending their 5G service too and suggests momentum is building for close to full coverage in the major metropolitan centers by year-end, even with the coronavirus pandemic.

Dancing with Apple

However, as we noted in our piece on the company last January, “Qualcomm grows with its customers so anytime they sneeze, Qualcomm is at risk of catching a cold.” It could be said that Apple hasn't sneezed yet but they have a bit of a shiver, as Raymond James noted in April when they cut their price target on the iPhone maker due to perceived lower demand from China in the face of the virus. In May, this negative sentiment filtered through to Qualcomm as Wells Fargo downgraded them and cut their price target.

For all that though, the stock of both companies has continued to march higher. Apple is on the verge of hitting fresh all-time highs after a 50% rally from March’s lows while Qualcomm is itself only about 10% away from pre-coronavirus levels.

As economies reopen and restrictions continue to be rolled back, demand is poised to trend back towards previously forecasted levels. And having weathered the brunt of the first wave so well, there’s every reason to think Qualcomm can still capitalize on the 5G play just as effectively.