2021 is shaping up to be a great year for 5G adoption. And among the numerous 5G stocks on the market, Qualcomm, Inc. (NASDAQ:QCOM) could be ready for takeoff.
Allow me to explain.
Qualcomm has two main segments: Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL). To put it simply, QCT is the company’s semiconductor business and QTL is the company’s licensing business.
Because Qualcomm’s technology is widely used in mobile phones, wireless networks, Internet of Things (IoT) devices, and automotive systems, 5G could become a major catalyst for its business.
In fact, it already has. In the first quarter of Qualcomm’s fiscal year 2021, which ended December 27, 2020, the company’s QCT segment generated $6.5 billion of revenue, representing an 81% increase year-over-year. (Source: “Qualcomm Announces First Quarter Fiscal 2021 Results,” Qualcomm, Inc., February 3, 2021.)
The bulk of that increase was due to revenue from handsets, which grew 79% from a year earlier to $4.2 billion.
And because QCT is the company’s bigger segment, its growth drove the company’s total quarterly revenue up 62% from a year earlier to $8.2 billion. For a decades-old chipmaker (Qualcomm has been around since 1985), a top-line growth rate higher than 60% is truly impressive.
Don’t forget, we’re still at the early stage of 5G penetration. Qualcomm estimates that approximately 225 million 5G handsets were shipped in calendar year 2020, and it forecasts that 450 million to 550 million will be shipped in calendar year 2021. The company projects that 5G handset shipment volume will top 750 million units by calendar year 2022. (Source: “2021 Annual Meeting of Stockholders,” Qualcomm, Inc., March 10, 2021.)
Furthermore, because 5G technology is converging with computing, edge devices, and the Cloud, the opportunity could be immense for Qualcomm. The company expects that, by 2022, its serviceable addressable opportunity in 5G will reach $100.0 billion.
Qualcomm has already done a great job capturing the opportunity. At the company’s recent annual shareholder meeting, its chief executive officer, Steven M. Mollenkopf, said,
In QTL, we signed over 120 5G agreements, and we’ve built on our early [research and development] investments to drive the business. We also had some significant milestones in the licensing business with the [Federal Trade Commission] win as well as the ability to sign the Huawei deal in, I think, very unusual circumstances.
(Source: “Edited Transcript: QCOM.OQ – Qualcomm Inc Annual Shareholders Meeting,” Qualcomm, Inc., March 10, 2021.)
Another thing that makes Qualcomm stock stand out is that, other than getting a huge revenue boost from 5G, the company has also improved its bottom line. In its December quarter, Qualcomm earned adjusted net income of $2.5 billion ($2.17 per diluted share), which more than doubled the $1.2 billion ($0.99 per share) it earned in the year-ago period.
Qualcomm, Inc. (NASDAQ:QCOM) Stock Chart
Chart courtesy of StockCharts.com
Looking at the above chart, we see that, after enjoying a huge rally in the second half of last year, Qualcomm stock has pulled back since the beginning of February 2021.
However, the stock seemed to find some support at its 200-day moving average (the red line on the chart). If QCOM stock can successfully bounce off that support, Qualcomm, Inc. may find its way back up to its previous high in the $160.00 range.