Qualcomm Stock Is a Power Play on 5G and AI

Qualcomm (NASDAQ:QCOM) has gotten its mojo back. The company is really starting to look as good as it did during its early years. And QCOM stock has responded. Over the past year, the shares have jumped 67%, and the stock’s market capitalization has soared to $147 billion.

Qualcomm (QCOM) logo on an outdoor signSource: Akshdeep Kaur Raked / Shutterstock.com

A couple of years ago, though, the company’s situation looked much different. It was facing potentially enormously costly litigation in various countries and had to contend with a major lawsuit against it by Apple (NASDAQ:AAPL).

But Qualcomm has been able to successfully manage through all of those issues. And a key reason is the company’s extensive set of must-have technologies.

So after the rally by QCOM stock, what’s next? Can the shares’ momentum continue?

I think it can.

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Qualcomm’s Drivers

From its founding, Qualcomm was an organization focused on cutting-edge engineering. Much of its early work focused on government and defense initiatives, including satellites.

That experience helped the company develop technology for the rapidly growing mobile phone industry. Qualcomm also protected its innovations with an aggressive patent strategy, while focusing on building global standards.

At the heart of its efforts in these areas was its CDMA (code-division multiple access) technology.

Given all this, it should be no surprise that Qualcomm has been one of the biggest beneficiaries of 5G, one of the most powerful trends in technology today. The company has invested in building a full suite of chips and systems for 5G that has generated significant sales.

Just look at the company’s latest earnings report. Its revenue soared 62% year-over-year to $8.24 billion, and its net income came to $2.46 billion.

On the company’s earnings call, its CEO, Steve Mollenkopf, said:

“In our licensing business, our broad portfolio of foundational system-level innovations and intellectual properties across 3G, 4G, and 5G, along with valuable implementation patents is unmatched and recognized in part by having signed more than 120 5G license agreements, up from 111 license agreements last quarter. Our continued success in-licensing reflects our development of foundational technologies enabling 5G standards coupled with leadership in developing the standards themselves.

He added: “{We have also shown} Leadership in developing the products necessary to implement 5G technology and leadership in enabling the industry to rapidly implement 5G seamlessly worldwide.”

Yet Qualcomm is not just about 5G. The company is gunning for multiple other large opportunities. One is AI (artificial intelligence), which it has been working on for the past decade.

The technology has proven useful across businesses like smartphones, autos, IoT (Internet-of-Things) and data centers. One factor helping Qualcomm in these areas is its deep experience with both chips and software. In autos, its modems are in more than 150 million vehicles, helping to position Qualcomm for the trend of connected cars.

What’s more, its networking business is showing a great deal of traction as well. Qualcomm’s big driver in this area is the Wi-Fi 6 standard. That is likely to be a powerful technology for private networks, such as those of automated factories.

The Bottom Line On QCOM Stock

QCOM stock does have risks. For one thing, areas like AI are incredibly competitive. What’s more, there are shortages of semiconductors. After all, Qualcomm relies on third-parties for its production, which could limit its growth.

But for the most part, the company is still in an enviable position. Its technologies are targeting massive opportunities, so it seems reasonable to believe that its long-term growth will be robust.

And besides, the valuation of QCOM stock is fairly reasonable, as the shares have a forward price-earnings multiple of 18 times. That is especially attractive compared to other tech companies with similar growth prospects like Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Apple.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling.  He is also the author of courses on topics like the Python language and COBOL.

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