Qualcomm (QCOM) is a leading semiconductor company that mostly focuses on the smartphone industry. It is a top chip manufacturer that enables wireless connectivity, like 5G, 45, and 3G.Â
The company has been expanding into other industries, such as the Internet of Things (IoT), automotive, smart homes, cameras, and audio.Â
As a result, the company is at the intersection of the biggest technological changes globally like artificial intelligence, 5G, machine learning, and autonomous vehicles.
According to its annual results, Qualcomm makes most of its revenue in equipment sales with the rest coming from licensing.Â
Qualcomm’s business has come under pressure in the past few years. A key challenge is that big smartphone companies like Apple and Samsung have started to build their smartphones. Apple will start using its internal 5G chips by 2027.Â
Qualcomm’s annual revenue jumped from over $24.7 billion in 2019 to over $44.2 billion in 2022. It then dropped to $35.8 billion in 2023 as its top industries slowed.
Most recently, Qualcomm has made headlines after news that it had approached Intel, the embattled chip pioneer.Â
Qualcomm stock was trading at $166.95 while its positive hype jumped to 70%.
Positive hype
Qualcomm, with a market cap of over $185 billion, has expressed hopes of buying Intel, a company valued at over $97 billion. Analysts believe that the deal would not be allowed to go on because of the size of the two companies.
It is also unclear whether Intel would agree to a buyout since Apollo Global has expressed hopes of funding it with $5 billion.
The company’s solutions are important in the artificial intelligence and internet of things (IoT) industries.Â
Qualcomm still has a large market share in the smartphone and tablet industries since it supplies firms like Samsung and Apple.Â
The company has started growing again, with its second-quarter revenue rising to over $9.3 billion from $8.45 billion in the same period in 2023. For the first half of the year, Qualcomm’s revenues stood at $28.7 billion from $27.18 billion.Â
Qualcomm is a high-margin business with gross margins of 55% and net margins of 23%. These numbers are higher than the industry medians of 49% and 3.60%.
Some analysts believe that Qualcomm’s potential acquisition of Intel would make sense since Intel is a leading player in the PC industry. Intel’s value can also be unlocked by good management.
Qualcomm is seen as an undervalued company with a forward P/E ratio of 19.12, lower than the industry’s median of 29.10.Â
Analysts expect that its stock will rise to $214 the current $166.Â
Negative hype
Qualcomm may dilute investors if it goes ahead with Intel’s buyout since most of the deal would be financed by stock. It would also need to raise substantial sums of money in the form of debt.
The company will likely struggle as smartphone sales continue falling. The most recent data shows that US smartphone shipments dropped for the sixth consecutive quarter and this trend will continue.
While Qualcomm is diversifying its revenue sources, the other segments like vehicles is still substantially smaller than its smartphone business.
There is a risk that the AI industry will face a correction after having substantial investments in the past few years.
Qualcomm has also attracted negative hype after its stock fell by over 27% from the year-to-date high.
Qualcomm stock analysis
On the daily chart, the QCOM stock price soared to a high of $23o in June and has now dropped by over 27%. It has moved below the 50-day and 200-day moving averages, meaning that bears are in control for now.
Most importantly, the stock has formed a rising wedge and a bearish flag chart pattern. These two patterns tend to be highly bearish, meaning that the stock may drop in the coming weeks. If this happens, the stock will drop to the next point at $150.
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