Given the ongoing trade war and the lawsuits surrounding Qualcomm (NASDAQ:QCOM) stock, recommending buying QCOM stock may seem like a strange call.
Also making the call look strange is that, from a chart perspective, Qualcomm stock has offered little to excite investors. QCOM stock is at roughly the same level as it was four months ago. Other than Qualcomm’s price spike following the settlement of its legal dispute with Apple (NASDAQ:AAPL), QCOM stock has offered little to investors in recent years.
However, the rise of 5G looks poised to place the company’s Snapdragon 855 chipset into billions of devices over the next few years. This market dominance will propel QCOM stock to new highs, overcoming both legal and geopolitical challenges.
Qualcomm’s Power Transcends the Market
QCOM will release its fourth-quarter earnings report n Nov. 6 after the closing bell. The results may be somewhat boosted by sales of the company’s 5G chipsets. However, I think 5G will not tremendously accelerate QCOM’s growth until future quarters.
Apple ended its legal battle with QCOM because of the superiority of the company’s 5G chipsets And the widespread use of QCOM’s chips may have also persuaded a judge presiding over the company’s litigation with the Federal Trade Commission to grant a partial stay on the ruling against the company.
For now, China accounts for about two-thirds of the company’s revenue. That might seem like a huge negative in the current geopolitical environment. However, China’s 5G upgrade will depend heavily on Qualcomm’s Snapdragon 855 chipset. Unless China can develop its own chips that are at least nearly as effective as Qualcomm’s (a feat no company has yet accomplished), China will probably continue to remain dependent on QCOM’s chips.
QCOM’s Growth Story Is Just Getting Started
In recent weeks, companies that obtain their smartphone chips from Qualcomm have begun to sell their new devices.
InvestorPlace contributor Josh Enomoto mentions that Apple bought Intel’s (NASDAQ:INTC) 5G modem business unit. However, Enomoto also points out that over 30 smartphone makers will still use Qualcomm chipsets. I think the sheer amount of growth ensures QCOM stock will move higher over time.
Analysts, on average, forecast that the 5G chipset market will grow from $2.1 billion in 2020 to over $22.9 billion by 2026.This massive 5G growth should also propel the dividend of Qualcomm stock higher. The current annual payout of $2.48 per share yields about 3.3% at current prices. The dividend has also risen for eight straight years, including times when the lawsuit with Apple held QCOM stock down. If the payout can increase under those conditions, it should continue going up as QCOM brings 5G to our phones and tablets.
Concluding Thoughts on QCOM Stock
5G growth will propel QCOM stock and its dividend to new highs. The company’s lead in the all-important 5G chipsets appears poised to transcend its current and past challenges. This power has already alleviated many of its legal problems. Moreover, China will probably have no choice but to continue to buy its chips from QCOM.
As a result, the company will generate massive revenue gains over the next few years, pushing QCOM stock higher. I also believe it will drive the dividend higher as well. This gives both income-oriented and growth-focused investors huge incentives to load up on QCOM.
QCOM stock appears calm for now. The upcoming earnings report may do little to change that. However, Qualcomm will soon storm the 5G market. Investors should buy QCOM stock to exploit this opportunity.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.