What to Expect from QCOM Stock
When most people think smartphones, they don’t think about QUALCOMM, Inc. (NASDAQ:QCOM). But funnily enough, QCOM stock is your best bet for making money on the smartphone market.
Let me explain…
There’s a reason we think certain companies are good investments. It has to do with their level of visibility. As end consumers, we see Apple Inc. and its brand far more often than we see Qualcomm or its brand. That skews our perception.
We start to think that Apple must be a better investment than Qualcomm. After all, if QCOM stock is so valuable, then why haven’t we heard of it?
It’s an interesting question, but there is an answer: the visibility of a company has everything to do with whom they are selling to.
Think about it: Apple sells “iPhones” to regular folks, which is why we know about them. Its marketing focuses on getting our attention. We go into the “Apple Store,” use “iTunes,” have “iPhones” and “iPads”—it’s all designed to invade our presence of mind. We become familiar with the brand, and that can earn our loyalty.
But not all companies exist to sell us stuff. Some of them, like Qualcomm, exist to sell to other businesses. As a result, we don’t hear about them very often. But if they make a lot of money, does it really matter?
I have a pet theory that this “visibility effect” is why Tesla Motors Inc and Netflix, Inc. earn such high valuations relative to lesser-known (but more profitable) companies.
Qualcomm is one of these lesser-known companies. It sells advanced microchips to companies that make smartphones, tablets, and smart devices, but here’s the kicker—it can sell to as many companies as it likes.
That’s what I love about this kind of company. Betting on a company like Qualcomm is like betting on a whole industry, which means you don’t have to worry as much about consumer preferences.
For instance, if customers suddenly decide they don’t like the new iPhone, they might switch to an “Android” phone. That would be a huge blow to AAPL.
By contrast, QCOM stock is relatively safe, even if one of its clients loses a few customers. They’ll probably be switching to another of Qualcomm’s clients anyways.
But aside from the broad strokes, there are some really specific reasons I love QCOM stock.
One of the reasons is the company’s new microchip, the “Snapdragon 820.” This microprocessor is an incredibly powerful and cost-effective choice for smartphone makers. It could drive Qualcomm’s growth for the next few years.
For one thing, the Snapdragon 820 can process virtual reality (VR) content, which makes it the chip of the future. VR content is going to be everywhere in the coming years.
But more than that, Chinese companies like Xiaomi have been making cheaper smartphones with the Snapdragon 820. They are offering customers iPhone- and Samsung-level quality for half the price. (Source: “Apple, Samsung rival Xiaomi readies itself for US ‘battle’,” CNET, May 12, 2016.)
And that’s why I see Qualcomm coming out ahead in the next few years. Both Apple and Samsung make their own microprocessors, but their sales growth has sputtered to a halt.
It’s because the only people left in the world without smartphones are the ones who can’t afford them. Eventually, some of these consumers will rise out of poverty, but they will look for the cheapest option to enter the market.
Whatever that brand is, I’m almost certain it’ll be powered by Qualcomm’s microprocessors. The company is simply the best bet in the smartphone market.