Shares of semi and wireless technology play Qualcomm (QCOM) have really made up for lost time in the final quarter of 2021. Despite the remarkable year-end rally, the stock is up a modest 22%, trailing the broader S&P500.
With a good number of catalysts to look forward to in the new year and a glimpse of strength already in the rear-view mirror, the stock seems to be a relatively cheap way to get some meaningful growth.
In that regard, Qualcomm is a rare breed in this type of market, where investors can still expect to pay a pretty penny for solid growth prospects. I am bullish on Qualcomm stock for 2022 and think it still has room to the upside despite sitting close to all-time highs. (See Analysts’ Top Stocks on TipRanks)
Qualcomm Stock Should Be Way Pricier Given Its Recent Strength
Semiconductor supply-chain problems have been a major talk of the town in 2021. Indeed, Qualcomm’s supply chain was not spared from the COVID-19-induced disruption. Still, the company has managed quite well through the choppy waters, with robust revenue growth and operating margins showing signs of improvement.
Moving ahead, Qualcomm is likely to continue benefiting from the broader adoption of 5G technology. Until now, 5G strength has mostly been about smartphones. Over the next several years, though, a wave of new hardware will embrace the 5G standard, with the potential to bring Qualcomm’s 5G strength to another level.
5G Growth Beyond Smartphones
The Internet of Things (IoT) trend stands to really pick up traction through the 2020s. Surging demand for 5G connectivity for a wide range of hardware devices could further bolster Qualcomm’s 5G business to unfathomable levels, even as demand driven by smartphones begins to taper.
Specifically, autos and mixed-reality headsets are two areas that could really pick up traction over the next three to four years. Undoubtedly, there’s a race to the metaverse, with Meta Platforms (FB) and Apple (AAPL) likely to invest heavily in their own headsets.
The latest VR/AR headsets are cutting the cord, and the next one could include enhanced 5G connectivity. Undoubtedly, many firms, especially those within the FAANG cohort, are itching to get an edge in the race to dominate the metaverse.
While it’s hard to see how growth from future 5G-enabled headsets will compare to smartphones, I do think its growth prospects through the course of the next decade could keep Qualcomm’s impressive top-line growth (30-40%) alive for years to come.
Automotive is another market segment that’s likely to be very hungry for next-generation connectivity hardware. Electric and autonomous vehicle trends could really take off through 2025, with Apple also poised to get in on the action with a self-driving car of its own.
It’s also tough to gauge growth from the next generation of connected autos. Arguably, Qualcomm stock’s mere 6.3 times sales and 23.4 times trailing earnings multiple don’t fully reflect its full potential.
Qualcomm Stock: Ridiculously Cheap, but There Are Risks
Qualcomm stock is a wireless technology innovator that’s at the forefront. The company is on the right side of many emerging technology trends that could enrich shareholders. As with any growth stock, though, there’s much in the way of uncertainty regarding the future.
New markets will bring forth demand for greater connectivity. That said, rivals will take notice if they haven’t already, and they will swoop in to take share in what’s looking to be a very profitable corner of the hardware space.
Which rivals may yet to be on investors’ radars? Apple stands out as a top unknown. Qualcomm and Apple have enjoyed a bittersweet partnership, but they’re poised to clash over the next two years as Apple commits to building its own mobile chips.
Even if Apple’s cellular modem tech ends up being superior to Qualcomm’s, Apple will likely keep its line of chips exclusive to its own products. That said, it’s hard to say for sure, given Apple may be more willing to open up its ecosystem in the distant future.
In any case, Qualcomm’s dominance may yet to be fully factored into the valuation at today’s prices. Qualcomm will still supply a fifth of iPhones in 2023, a time when Apple’s modem chips are expected to land.
With a slew of connected devices coming in fast, there may not be enough 5G chips to go around, even with new challengers in the field. For that reason, QCOM stock has a very compelling value proposition going into 2022.
Wall Street’s Take
Turning to Wall Street, QCOM stock comes in as a Moderate Buy. Out of 21 analyst ratings, there are 12 Buys and nine Hold recommendations.
The average Qualcomm price target is $197.28, implying 7.6% upside potential. Analyst price targets range from a low of $160.00 per share to a high of $225.00 per share.
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Disclosure: Joey Frenette owned shares of Apple at the time of publication.
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