What does the imminent arrival of 5G (fifth-generation) wireless technology mean for investors?
Research analysts estimate that 5G will be dramatically faster than the current 4G network – perhaps up to 100 times quicker – and also significantly reduce latency. Thanks to this massive leap in performance, 5G is expected to enable new applications such as augmented reality and cloud-based gaming.
Naturally, companies like Qorvo [NASDAQ: QRVO] that are working in the 5G space have attracted a great deal of attention. But is Qorvo [NASDAQ: QRVO] a 5G stock worth buying, or are shares headed downhill in the near future?
What is Qorvo?
Qorvo is a U.S. semiconductor company that designs, manufactures, and supplies radio frequency solutions. Radio frequency is the band of frequencies between roughly 20 kHz to 300 GHz.
The company was founded just 4 years ago in 2015 as a result of the merger between TriQuint Semiconductor and RF Micro Devices (RFMD). Qorvo [NASDAQ: QRVO] is headquartered in Greensboro, North Carolina and is currently led by Robert Bruggeworth, who has served as CEO since the company’s inception.
The major competitors of Qorvo in the telecommunications and semiconductor industries include Applied Micro [private], MACOM [NASDAQ: MTSI], Wolfspeed [private], Skyworks [NASDAQ: SWKS], and Inphi [NYSE: IPHI].
How Does Qorvo Make Money from 5G?
5G technology mainly uses two parts of the radio spectrum:
- EHF (extremely high frequency) between 30 GHz and 300 GHz, also known as the millimeter band
- UHF (ultra high frequency) between 300 MHz to 3 GHz.
Each part of the radio spectrum has its advantages and drawbacks. Waves with very short wavelengths have a smaller range, but higher throughput (which results in faster download speeds).
In preparation for the 5G rollout, Qorvo [NASDAQ: QRVO] is releasing a variety of radio frequency 5G infrastructure products, both for the millimeter band and for the sub-6 GHz band. These 5G solutions include digital step attenuators, high frequency amplifiers, and phase shifters.
Is Qorvo Stock a Buy?
Let’s start with the positive features of Qorvo stock. The first few months of 2019 were very positive for Qorvo shares, which rose by roughly 25% from January through April. Qorvo stock grew mainly due to investors’ expectations about the coming 5G boom.
Further good news came in May, when the company announced that its fiscal fourth quarter results had outperformed investors’ expectations.
Qorvo’s Q4 2019 results were $1.22 per share based on sales of $681 million, beating predictions of $1.06 per share and sales of $671 million. Thanks to these results, Qorvo stock immediately jumped by 11%.
Investors have good reason to be optimistic about both Qorvo itself and the upcoming 5G breakthrough. If all goes as planned with the 5G rollout, investors who are holding Qorvo shares may well have a rosy future.
Plus, Qorvo [NASDAQ: QRVO] recently announced the acquisition of the company Active-Semi International, which should help the company diversify its portfolio by adding highly differentiated analog/mixed signal power solutions.
According to JPMorgan [NYSE: JPM] analyst Bill Peterson, Qorvo has a bright future ahead of it, thanks to the company’s “content gains in 4.5G/5G handsets and wireless infrastructure.”
What are the Risks of Buying Qorvo Stock?
While 2019 has overall been a strong year for Qorvo shares, the recent performance of the stock has been a mixed bag. Since the announcement of the Q4 2019 results, Qorvo stock has taken a bit of a nosedive, losing 17% of its value.
One major reason for this decline has been the possible harm that U.S. tariffs on China will have on the company.
Qorvo’s largest market is China; the country accounts for a full 52% of all Qorvo sales. Fears of an economic slowdown there may negatively impact the company’s profitability.
In particular, Qorvo and other U.S. companies were recently banned from dealing with Chinese tech company Huawei, whose P30 smartphone is apparently powered by a Qorvo chip. With this embargo lasting indefinitely, Qorvo’s profit margins will certainly take a hit in the short and medium futures.
Yet another risk of buying Qorvo stock is that the success of 5G isn’t necessarily a guarantee. Some news organizations have published articles about the potential health risks of 5G from radiation, although most of them agree that the science is at worst inconclusive.
Is Qorvo One of the Best 5G Stocks to Buy?
Most of the reasons not to buy Qorvo stock aren’t related to the company itself, but to the state of the 5G industry as a whole. Within this industry, however, Qorvo has established itself as a leading player that is well-positioned to profit in the likely event that 5G catches fire.
The recent uptick in Qorvo shares is indicative of investors’ generally positive feelings about Qorvo stock. Concerns about slowdowns, trade wars, and embargoes in Qorvo’s primary market of China are worrisome, but haven’t yet affected the stock meaningfully. Analysts currently estimate that the stock should have a target price of roughly $78 to $81.
Due to the many advantages of Qorvo stock, we can say that Qorvo remains a top 5G stock for investors looking to get into the fast-paced world of 5G companies.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.