Is Qualcomm Stock Overvalued?

Qualcomm, Inc. (NASDAQ:QCOM) is an American semiconductor company at the center of the race to 5G. It rose to prominence during the 3G era and expanded into manufacturing the semiconductor chips and antennas used in mobile phones, modems, servers, PCs, cars, and other Internet of Things applications.

But QCOM share price hasn’t spiked this high since the dotcom bubble in 2000. That has bearish investors wondering is Qualcomm stock overvalued?

The company has a hot/cold relationship with iPhone maker Apple Inc (NASDAQ:AAPL). It also faces stiff competition from Broadcom Inc (NASDAQ:AVGO), Nvidia Corporation (NASDAQ:NVDA), Intel Corporation (NASDAQ:INTC), and more.

It’s also strengthening its partnership with Google to speed up Android updates. Besides its profitable chip business, Qualcomm makes the bulk of its money from licensing its intellectual property (IP). It receives a license payment for each CDMA phone sold using its Snapdragon processors.

Let’s run system diagnostics to see if Qualcomm can maintain its market valuation.

Why Qualcomm Stock Went Up

Qualcomm consistently beat analyst earnings estimates during 2020. The company’s market capitalization crashed in March, but it had big jumps in June, August, and November, coinciding with its quarterly earnings reports.

Much of this is because the company makes money when Samsung, Apple (AAPL), and other handset manufacturers sell a 5G phone.

The company cornered the market on 5G chipsets, and it’s likely to continue its growth over the next two years as it rides the trend of further mobile adoption.

Bullish analysts have Qualcomm listed as a strong Buy because of its prior year successes and next year’s estimated revenue opportunities. It’s in the right place at the right time to profit from customers shifting to 5G mobile technology.

It also makes pure profits from its licensing division. To see where its revenue and income are generated, we need to look at the books.

Qualcomm Financials Are Seasonal But Impressive

Qualcomm rose to an all-time high price level of $161.07 and has settled at a P/E ratio of around 30x.

Qualcomm’s reported for the most recent quarter (it’s fourth quarter for the 2020 fiscal year released in November) $1.45 adjusted earnings per share (EPS).

This is based on revenue of $6.5 billion for the quarter, which easily beat analysts estimates of $5.93 billion, or $1.17 per share. It caused analysts to raise their buy price from $165 to $180 for the quarter.

The company has over $33 billion in total assets, with $11.2 billion on hand for the quarter ending in September. This gives it plenty of money to spend to stay on top of its market. Of course, it’s not all fun and games.

Qualcomm’s smartphone dominance may have a strong competitor now that Apple bought Intel’s mobile chip business.

Is Qualcomm Valuation Too High?

Older generations remember when Intel (INTC) and AMD (AMD) owned the chip market. At the time, desktop PCs ruled the roost in booth home and enterprise use. But the 2010s began a shift toward smartphones, tablets, and other mobile devices.

Many of us now have computers in our vehicles, HVAC system, lights, and home entertainment systems. Today’s smart TVs are just as powerful as tablets, and CPU chips are at the heart of this.

While Qualcomm has a virtual monopoly over its business, large companies like Apple can afford to spend big to overcome the barrier to entry. It saves Apple money by bringing its chip business in-house to avoid paying licensing fees to Qualcomm for its iPhones.

Of course, that may not matter with Samsung buying all of Qualcomm’s Snapdragon 875 chips – revealed in December 2020. So long as phone, tablet, and laptop manufacturers continue buying, its chip business is safe.

And that’s only one part of its income.

Will Qualcomm Stock Drop?

QCOM share price isn’t immune to the effects of the economy. When the stock market crash occurred, Qualcomm dropped like every other stock. A new government stimulus is expected to keep things running through the beginning of 2021, but the summer could be a hot one that melts tech stocks.

There’s already plenty of antitrust buzz in Washington, with Apple (AAPL), Facebook (FB), Amazon (AMZN), and Google (GOOG) all in the crosshairs. Qualcomm could find itself in the regulatory crosshairs too.

But it’s still profitable – the company’s technology licensing has high margins and a strong focus on 5G wireless technology. This focus will pay off in the long run for all companies involved, as wireless bandwidth will continue to be necessary for our AI-powered IoT world.

And Qualcomm processors are still found in Apple’s iPhone 12. Strong customer demand during the holiday season means both companies will profit. A reopening economy could provide more benefit to the company’s hardware.

Is Qualcomm Stock Overvalued? The Bottom Line

Qualcomm is a long-standing technology company with a mobile-first business model. This propelled the stock to record highs circling $150 per share. The company’s $160+ billion plus market capitalization has some bearish investors wondering if the stock will deflate when the economy reopens.

But the mobile revolution was long in play. And Qualcomm is expanding beyond chips into RF antennas and other hardware needed for the move to 5G.

This has bullish investors remaining strong on the stock with upwards mobility of up to $50 per share possible over the next six months. The world still needs a technical infrastructure, and when we do reopen, it will be to a mobile and connected society.

Cars, home fixtures, entertainment, and more now has computer chips. Qualcomm’s microprocessors beat out long-standing giants Intel and AMD at their own game. This San Diego technology company has a strong roster of products and IP to generate revenues for investors for another wireless generation.

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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.