Qualcomm, Inc.: 5G Stock Turning From Bearish to Bullish?

Why This 5G Stock Deserves Investor Attention Now

Like many tech stocks, Qualcomm, Inc. (NASDAQ:QCOM) has been on a rather choppy ride this year. That shouldn’t really come as a surprise. After a huge rally in 2020, there was bound to be some profit-taking, putting pressure on the price of QCOM stock.

The chart below shows that Qualcomm stock experienced a substantial pullback in February 2021 and then started trading sideways. At one point, QCOM stock even formed a rather bearish technical pattern.

Qualcomm stock actually built up some upward momentum from late March to April, but then it underwent a sudden correction in the first two weeks of May, paring those gains.

That caused Qualcomm, Inc.’s 50-day moving average (MA) to cross below its 200-day MA. In technical analysis, such an event is called a death cross, indicating the potential for a major sell-off.

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The good news is, QCOM stock seemed to have found support around $125.00 right after that death cross. Since then, it has hopped on another upward journey.

Here’s the best part: thanks to a solid earnings report from Qualcomm, Inc., Qualcomm stock gapped up in late July. That has brought its 50-day MA very close to its 200-day MA.

If QCOM stock can continue its upward momentum, we could see its 50-day MA cross above its 200-day MA very soon. That would form what’s called a golden cross—the opposite of a death cross—indicating the potential for a major rally.

Qualcomm, Inc. (NASDAQ:QCOM) Stock Chart

Chart courtesy of StockCharts.com

Obviously, technical indicators are, as their name suggests, only indicators. There’s no guarantee that a bull run will follow a golden cross—just like there’s no guarantee that a sell-off will always follow a death cross.

What we can infer from Qualcomm stock’s recent move, though, is that the selling seems to have diminished and the overall sentiment is more bullish compared to a few months ago.

There are many reasons to be bullish on QCOM stock. One of them is 5G.

Qualcomm, Inc. operates through two main segments: a semiconductor business called Qualcomm CDMA Technologies (QCT) and a licensing business called Qualcomm Technology Licensing (QTL).

In Qualcomm’s most recent reporting period—the third quarter of its fiscal year 2021 (ended June 27)—revenue from the QCT segment surged by 70% year-over-year to $6.5 billion. (Source: “Qualcomm Announces Third Quarter Fiscal 2021 Results,” Qualcomm, Inc., July 28, 2021.)

Notably, handset revenue rose by 57% year-over-year to $3.9 billion, which was driven by the adoption of 5G products in premium and high-tier devices across all major original equipment manufacturers (OEMs).

The real highlight from QCT, though, was radio frequency (RF) front-end revenue, which surged by 114% year-over-year to $957.0 million. RF front-end products—which include power amplifiers, trackers, antenna tuners, and filters—are an essential part of 5G.

Simply put, 5G is driving substantial growth in Qualcomm, Inc.’s QCT segment.

Results from the QTL segment weren’t shabby, either. In the third fiscal quarter, the licensing business delivered $1.5 billion of revenue, marking a 43% increase year-over-year.

Keep in mind that Qualcomm, Inc. is a leader in 5G intellectual property globally, with more than 150 5G license agreements signed to date. So, with increasing 5G adoption, the company’s QTL segment should experience substantial growth.

As mentioned earlier, the third-quarter earnings report is what caused Qualcomm stock to jump recently. For the entire company, its adjusted revenue rose by 63% from a year earlier to $8.0 billion for the quarter. Meanwhile, its adjusted earnings per share more than doubled year-over-year to $1.92.

Considering that Wall Street was projecting adjusted earnings of $1.68 per share on $7.6 billion of revenue, Qualcomm, Inc. easily beat analysts’ expectations.

Going forward, 5G should continue to act as a major catalyst for QCOM stock.

In Qualcomm’s latest earnings conference call, the chief financial officer, Akash Palkhiwala, said, “For calendar 2021, we’re maintaining our forecast for high single-digit growth for global 3G, 4G, 5G handsets, including 450 million to 550 million 5G handsets. Given the strong adoption of 5G in developed regions in China, we have a bias towards the high end of our 5G forecast.” (Source: “QCOM.OQ – Q3 2021 Qualcomm Inc Earnings Call,” Qualcomm, Inc., July 28, 2021.)

For Qualcomm’s fourth fiscal quarter, management is forecasting revenues of $8.4 to $9.2 billion. If the company reaches the midpoint of that guidance range, it will achieve year-over-year revenue growth of 46%.

Analyst Take

In today’s market, there are plenty of companies that can benefit from the increasing adoption of 5G technology. But Qualcomm, Inc. stands out due to its established market position and massive potential.

Factoring in the technical setup in Qualcomm stock, growth investors might want to start paying attention now.