The QCOM stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

• The big beat on Q3 2020 ER and the announced settlement with Huawei boosted Qualcomm’s stock price to $103.85.
• We can already cash out our handsome profit on QCOM. QCOM was trading below $81 when we made our May 20, 2020 buy recommendation for it.
• Those of you who are not in urgent need for cash, you can still hold on to QCOM. Value-wise, QCOM at over $100 is not yet fully-priced.
• My one-year price target for QCOM is $120. Demand for smartphones will really shoot up after this COVID-19 pandemic gets a government-approved vaccine.
• Qualcomm is a solid 5G bet and Qualcomm also has the option to re-enter the data center/cloud computing business.

The after-market trading pushed Qualcomm’s (QCOM) stock price to above $103 after Q3 2020 earnings report beat revenue and EPS estimates. There’s an ongoing pandemic and yet Qualcomm still posted a Q3 revenue of $4.9 billion (+0.2% Y/Y), beating Street estimate of $4.8 billion. Q3’s GAAP was $0.74, beats by $0.32. The big beat on EPS estimate and the announced Huawei licensing settlement really compelled many investors to push QCOM’s beyond $103. Our May 20 buy QCOM recommendation is now a winning bet that you can cash out.

On the other hand, those of you who have no urgent need for cash can still hold on to QCOM. The chart above also clearly says that the quantitative AI of Seeking Alpha still gives QCOM a Value Grade of B. It means QCOM at $103 is still not fully-priced. It still has obvious upside potential. My 1-year price target for Qualcomm’s stock is $120. Compared to other fabless semiconductor firms, Advanced Micro Devices (AMD), and Nvidia (NVDA), QCOM is relatively undervalued.

Refer to the comparative chart below. QCOM’s valuation ratios are still much lower than that of AMD’s. This is unjustified because Qualcomm is the leader in smartphone application processors. AMD is just a manipulated and over-hyped midget rival of Intel (INTC).

Huawei Is Still A Worthy Ally For Qualcomm

Huawei’s capitulation and acceptance that it must pay licensing/royalty fees to Qualcomm means QCOM has a strong friend in China. Chinese politicians are not going to target Qualcomm in its future retaliation against Trump’s rabid anti-Huawei crusade. In other words, I believe Qualcomm will continue to enjoy a 40% market share in the $4.7 billion/quarter global smartphone application processors industry. The new restrictions against Huawei might also force it to use Qualcomm Snapdragon processors for its next generation of phones and tablets. It is now very hard for Huawei’s subsidiary HiSilicon to design and outsource the fabrication of Kirin smartphone processors.

Even with the current COVID-19 headwind, I think the global smartphone/mobile application processor business can still grow to $20 billion by 2023. My estimate is higher than Market Research Future’s old $18 billion estimate for 2023. COVID-19 is forcing more companies to let their employees work-from-home. This trend is going to boost the sales of tablets and smartphones. It is cheaper for companies to buy tablets and smartphones than business-grade laptops for its work-from-home employees.

QCOM is a buy because of its strong IP licensing business. Apple and Huawei recently surrendered to the legal patent supremacy of Qualcomm. No company can escape the tollbooth of Qualcomm. If Trump loses his re-election bid, the long-term licensing deal with Huawei could seriously boost Qualcomm’s next 5 years of operations. If Biden wins, American would probably reduce its anti-Huawei crusade. Less sanctions against Huawei should allow it to permanently dethrone Samsung as the world’s largest smartphone vendor.

Huawei became the new no. 1 smartphone for Q2 2020 but this could change if the U.S. also targets the smartphone business of Huawei. Right now, the U.S. sanctions only targets the telecom/server hardware products of Huawei. My fearless forecast is that a less antagonistic U.S. president in the White House by next year would allow Huawei to become permanent no. 1 smartphone company. The chart below illustrates just how fast Huawei’s toward becoming no. 1 in smartphones.

Going forward, Huawei’s licensing deal with Qualcomm could also lead to the Chinese company using 5G modems for Huawei-branded phones, tablets, and computers. Huawei might also use Qualcomm 5G processors for 5G antennas that are intended for telecom companies.

The other untapped catalyst for Qualcomm is in data centers. Qualcomm can make tons of money if it starts a big push for ARM-based server processors or Snapdragon-branded AI accelerators. The world’s fastest supercomputer right now is Japan’s Fugaku. Fugaku uses ARM processors. Qualcomm did not really kill its Centriq server-grade processor in 2018. Qualcomm allowed its Chinese development partner, HXT, to continue development and mass production of Centriq 2400. HXT has rebranded Centriq for the Chinese market as Thang Long 4800.

There is nothing preventing Qualcomm from rebranding the Thang Long 4800 as a Centriq product for the international market. My fearless forecast is that Qualcomm can add $250 to $500 million in new revenue if it starts disrupting Intel’s dominance of the server processor industry. Qualcomm is the only firm big enough and rich enough to really make ARM-based server processors a commercial success. Qualcomm also has the option to buy Ampere. Ampere is a start-up that has a very promising ARM-based server product that is competitive against x86 products of Intel and AMD. Qualcomm can use Ampere’s $5,800 ARM server processor to quickly disrupt Intel’s lucrative Xeon server business.

Conclusion

I repeat what I said last may – Qualcomm will not have any hard time getting a license to supply its technology and semiconductor products to Huawei and other Chinese companies. Qualcomm only needs to donate some campaign money to Trump and a few senators and it is business as usual.

Qualcomm is still a buy because it is relatively undervalued compared to other fabless semiconductor firms. Qualcomm also touts a robust balance sheet. It can still afford to quickly purchase companies that could make it a force on data center processors. Qualcomm’s TTM total cash is $10.6 billion. Thanks to its very strong licensing business (zero-overhead revenue generator) Qualcomm actually generates more cash flow than Nvidia.

I will only get nervous if Nvidia (NVDA) makes a successful acquisition of Arm Holdings. Nvidia owning ARM Holdings will let it choose which companies gets to renew their licenses. Qualcomm would be endangered if it could not renew its license to design and manufacture new Snapdragon processors for phones, tablets, and smart cars, 5G stations/antennas, and other Internet of Things devices.

My reiterated buy recommendation for QCOM is not supported by I Know First. The predictive AI of I Know First has a generally Neutral forecast for Qualcomm’s stock. The safest act might still be to take your profits on QCOM while the stock is priced above $100.

Past I Know First QCOM Stock Forecast Success

I Know First was successful with QCOM stock forecast. On May 19 2020, the I Know First algorithm issued a mid-term bullish QCOM stock forecast and the algorithm successfully forecasted the movement of the QCOM stock.  Until July 29 2020, QCOM shares rose by 16.37% in line with the I Know First algorithm’s forecast. See chart below.

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