Qualcomm Stock Has Priced in the Near-Term 5G Opportunity

Stocks to sell

In the recent past, most of the discussions about Qualcomm (NASDAQ:QCOM) have revolved around the launch of 5G. Without a doubt, the rollout of 5G is likely to be a game-changer for QCOM and for several industries. QCOM stock has responded positively to the company’s impending growth opportunity, surging 44% so far in 2019.

Qualcomm will move higher after correction

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I believe that QCOM stock has priced in QCOM’s  near-term growth opportunity from the 5G launch.  In simple terms, the launch of 5G will not be a positive turning point for QCOM or the industry. Instead, the majority of 5G-triggered growth will be spread out  over the next two decades.. As a result, in the next 12-18 months, Qualcomm stock might trade sideways or fall slightly.

That does not change my bullish long-term view on QCOM stock. My advice, however, is to remain cautiously optimistic about QCOM stock. The company will face obstacles, and the owners of Qualcomm stock might have to wait a long time for the 5G opportunity to translate into numbers.

5G Infrastructure Needs to Develop

Craig Moffet, who has been a telecom analyst for many years, believes that “there’s zero chance that 5G (will be) a ubiquitous technology” in the next two years. The key reason for his view is the challenge of installing the infrastructure that’s needed to support 5G networks.

In a very interesting podcast, several professors from the University of Pennsylvania’s Wharton School discuss the “Promises and Pitfalls of 5G.” Kevin Werbach, a Wharton professor of legal studies and business ethics,thinks that a “”fully functioning 5G future still is a long ways away.”

Gerald Faulhaber, a professor emeritus of business economics at Wharton  adds: “A key drawback is that these signals travel only short distances. Because millimeter wavelengths are short, they need more antennas to connect.”

Given these infrastructure challenges,  5G probably won’t become widespread over the next two years. That’s  why I believe that 5G won’t lift QCOM’s results and QCOM stock as much as some expect.

Infrastructure is also the key factor that gives China an edge over the U.S. when it comes to launching 5G. In another podcast from Wharton, Rebecca Fannin, a journalist and author, touches on this point. “China is outspending (the U.S.) on 5G wireless infrastructure and those towers that need to be built.”

Final Views on QCOM Stock

Qualcomm expects 5G to be a $12 trillion opportunity by 2035, and the opportunity goes beyond mobile phones. QCOM has launched a $200 million fund that will invest in start-ups that are developing ways to use  5G technologies in devices besides phones. Popularizing devices other than smartphones is key to boosting QCOM’s growth and QCOM stock over the long-term.

Meanwhile, a report by Intel (NASDAQ:INTC) suggests that 5G can “unlock the potential of augmented and virtual reality.” In addition, 5G will trigger innovation in the gaming sector.

Similarly,QCOM believes that 5G will “enable more than $1.1 trillion in sales to the global health care market in 2035.” Therefore, the company’s potential growth over the next two to three years can be debated, but there is little doubt that QCOM stock will continue to create value over the longer term.

In addition, QCOM stock has a current annualized dividend of $2.48, which is likely to be maintained. Moreover, the company has created shareholder value by repurchasing QCOM stock. Due to these factors, Qualcomm stock could be interesting on any corrections.

Overall, I am bullish on QCOM stock because 5G will greatly increase the company’s addressable market. But QCOM may undergo a correction before the long-term uptrend begins.

As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.

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