Even After Apple Settlement, Risks Abound for Qualcomm Stock Maybe the biggest issue here is that QCOM stock still is largely a smartphone play
By Vince Martin, InvestorPlace Contributor Jun 17, 2019, 5:16 am EDTI'm
The Qualcomm (NASDAQ: QCOM) roller coaster continues. Qualcomm stock has mostly traded sideways for much of this decade — but with quite a bit of volatility. Even by those standards, however, the last two months for QCOM stock have been something to see.
Source: Karlis Dambrans via Flickr
On April 15, Qualcomm stock closed below $58. Investors were worried about the company’s exposure to its slowing semiconductor segment, regulatory inquiries, and a high-stakes legal battle with Apple(NASDAQ: AAPL). The next day, Qualcomm announced a favorable settlement, surprising investors. That drove QCOM stock up 23% and beyond. It would touch $90 in early May — a cool 55% gain.
Since then, however, QCOM has fallen by nearly 30%. Trade war concerns have hit the stock and the semiconductor space more broadly. A negative FTC ruling added pressure last month, and again last week.
The sell-off might seem overdone. As I wrote recently, Wall Street seems to think so, with a consensus price target of $96. And I see the case. But any investor looking to time the bottom here — with QCOM stock in the $68 range — needs to realize that all for the noise surrounding the Apple relationship, there are many other risks lurking. Some already are playing out — and some may be yet to come.
Chip Sector ProblemsOne clear risk is that Qualcomm stock is going to be exposed to general sentiment toward semiconductor stocks. That sentiment has turned negative of late — one reason why QCOM stock has tumbled — and seems unlikely to get much better soon.
Indeed, cautious guidance from Broadcom (NASDAQ: AVGO) after Q2 earnings on Thursday seems likely to only add to the pessimism. AVGO stock fell more than 7% in after-hours trading and QCOM stock dropped 1.8%. Broadcom’s broad reach gives its management credibility in judging the outlook for much of the semiconductor industry. Its guidance undercuts the predictions of a second-half rebound made by Nvidia (NASDAQ: NVDA), Intel (NASDAQ: INTC) and other chip leaders.
That might seem a short-term problem. But it also means QCOM, in the context of the sector, isn’t quite as cheap as it used to be. A 13x forward P/E multiple sounds inexpensive — but INTC is at 10.3x. Even NVDA is at 21x, with better end markets for growth in datacenter and gaming. QCOM not that long ago was one of the cheapest chip stocks out there and that’s simply not the case anymore.
Is Apple Done?As my InvestorPlace colleague Dana Blankenhorn detailed last month, at least part of Apple’s willingness to sell came from Intel’s inability to deliver a baseband modem of its own. With nowhere else to go, Apple was forced to pony up.
But how long will Apple be willing to sit quietly? Already, rumors are swirling that Apple is going to buy Intel’s modem business, presumably as a first step toward bringing development in-house. Whether Apple makes that move or not, it’s not going to sit idly by forever under Qualcomm’s terms.