This Could Spell Huge Upside for QCOM Stock
Right before our very eyes, the Internet has changed. It has morphed from what Bryan Gumbel and Katie Couric quipped was a “newfangled” way to send mail into a digital Big Brother that knows everything about everything and everyone.
Just in case you weren’t paying close attention, it’s important to note that the Internet has leapt off your laptop and into everything else in your life! This is great news for QUALCOMM, Inc. (NASDAQ:QCOM). And, in my opinion, it will also be great for investors who own shares of QUALCOMM stock.
The Internet of Things Is About to Change Your Life
Now, if you really haven’t heard about the “Internet of Things” (IoT), here’s what it is. The Internet of Things is a virtual network where every tangible item in your life, from your refrigerator to your car (especially the autonomous one in a few years) will be interconnected—if it’s not already.
Right now, there are approximately 6.4 billion “things” connected to each other in the still nascent IoT. By 2020, there will be nearly 20 billion machines, devices, and systems up and running and connected to each other, generating sales of an estimated $3.0 trillion (yes, with a “T”). (Source: “Gartner Says 6.4 Billion Connected ‘Things’ Will Be in Use in 2016, Up 30 Percent From 2015,” Gartner, November 10, 2015.)
That’s Gartner’s estimate, though. According to the International Data Corporation, that number could be as high as $7.1 trillion. (Source: “Worldwide and Regional Internet of Things (IoT) 2014–2020 Forecast: A Virtuous Circle of Proven Value and Demand,” International Data Corporation, May 2014.)
To put that into perspective, the current worldwide market for semiconductors is a scant $327 billion. So, this IoT thing is a big deal. (Source: “WSTS Semiconductor Market Forecast Spring 2016,” World Semiconductor Trade Statistics, June 7, 2016.)
Here’s how it benefits QUALCOMM…
QCOM Stock Well Positioned to Exploit Changes
QUALCOMM makes money two ways: It manufactures and sells little chipsets that go into wireless devices and it licenses its vast portfolio of patents to other manufacturers.
Those little chipsets are the electronic components in an integrated circuit that manage the data flow between the processor, memory, and peripherals of wireless devices. (I would have written cellphones, but the reality is that the IoT is all about moving information wirelessly to and from all manners of, well, things.)
Think about Amazon.com, Inc.’s (NASDAQ:AMZN) drones, for example. They are wireless devices that for all intents and purposes are connected to the IoT. QUALCOMM is the world’s largest manufacturer of the type of technology that makes those things talk to each other. As the IoT expands, QUALCOMM stands to be one of the main beneficiaries—if not the main beneficiary—of this growth.
As mentioned, the other way QUALCOMM makes money is by licensing out its patented technology to other manufacturers. This is a huge business and today, it generates a little less than half of QUALCOMM’s revenue. But, it is wildly profitable, generating more than 80% of QUALCOMM’s earnings before taxes.
In my opinion, this segment is likely to get a whole lot bigger. The reason for this is that QUALCOMM owns more high-value patents (ones that are worth defending) than any other manufacturer vying for a piece of the IoT pie. (Source: “Internet Of Things – 2016: Patents and Perspectives,” LexInnova, last accessed August 5,2016.)
Data source: Company filings
If all of this wasn’t enough, QCOM stock is also a great income generator, currently yielding approximately 3.4%. QUALCOMM has paid a quarterly dividend since 2003 and has raised that dividend every year since then at a compound annual growth rate (CAGR) of more than 26.5%.
Chart courtesy of www.StockCharts.com
In my final analysis, I think QCOM stock deserves a place on any long-term investor’s watch list, at the very least. If you were not prescient enough to have bought Amazon or eBay Inc (NASDAQ:EBAY) back when Bryan and Katie asked, “What is Internet anyway?,” you may have a chance now to get in on what, in my opinion, will be one of the very big winners in the Internet of Things.