Over the past five years, shares of semiconductor stocks have been on an absolute tear. As a result, the PHLX Semiconductor Sector Index (SOX) has added 191% over the period, with several names notching gains of close to 2,000% (AMD, Nvidia). Lagging behind most is industry giant Qualcomm (QCOM). Over the same five-year period, QCOM shares have appreciated by only 46%.
There have been various headwinds hampering the semiconductor player’s progress. A run in with Apple regarding patent and licensing issues, a Federal Trade Commission led antitrust case, the US – China trade war – are just a few of the hurdles Qualcomm has encountered.
However, what this all means, according to Canaccord analyst Michael Walkley, is that QCOM’s current share price “is compelling.” So, what’s driving Walkley’s bullish outlook?
The 5-star analyst explained, ”We believe Qualcomm has a strong leadership position for 5G that should not only result in strong share gains with leading smartphone OEMs but also provide an opportunity of up to 1.5x the dollar content of a similar 4G customer smartphone due to a combination of increased RF content and higher pricing for 5G basebands versus premium-tier 4G solutions.”
After a difficult 1H20, smartphone volumes are staging a turnaround, and are expected to further improve as the year progresses. As Walkley said, a major catalyst for QCOM is the upcoming 5G cycle, which the analyst believes will have a meaningful impact and ultimately lead to “recovering earnings in F2021.”
Apple’s iPhone 12 launch in 2H20 is included in this cycle. That said, Apple isn’t the only one using Qualcomm technology, as the chipmaker is playing for both sides across the smartphone divide, with Android 5G handsets expected to bring Qualcomm market share, too. Additionally, the 5G story is gathering momentum in China where “the percentage of 5G activations is continuing to rise, and 5G price points now cover roughly 50% of the market.”
Adding to the good news, it already has 85 5G licenses, and the company’s high-margin QTL (Qualcomm Technology Licensing) business should “benefit from 5G smartphone growth trends.”
Walkley, therefore, reiterated a Buy recommendation on QCOM shares and raised the price target from $102 to $115. What’s in it for investors? Upside potential of 24% from current levels. (To watch Walkley’s track record, click here)
Among Walkley’s colleagues, the chipmaker has a Moderate Buy consensus rating, based on 10 Buys, 5 Holds and 3 Sells. The average price target hits $93.93 and implies modest upside potential of 1%. (See Qualcomm stock analysis on TipRanks)
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