The recent upward march in QUALCOMM, Inc.(NASDAQ:QCOM) stock could continue for a while.
San Diego, California-based smartphone chip giant QUALCOMM, Inc. (NASDAQ:QCOM) is back under the spotlight for its legal issues. The chipmaker's legal battle with Apple (NASDAQ:AAPL) took another turn when the company recently filed a suit against four Apple Contract Manufacturers(CMs). QCOM stock has suffered due to its legal hassles over the last few months but this time around it may be different. The better than expected Q2 earnings results had not done much to allay investor fears regarding the legal troubles bothering the company. However, Qualcomm shares have done well to make decent gains of more than 6.5% since the second quarter earnings announcement. The recent upward trend in QCOM stock looks set to continue in the days ahead.
The latest lawsuit filed by Qualcomm could boost investor sentiment.
In the Q2 earnings call, the top management of the chipmaker had stated that Apple was interfering with license agreements between Qualcomm and the iPhone maker's suppliers. This had lead to CMs withholding payments to the mobile chip giant. Derek Aberle - President, Qualcomm stated that "Apple suppliers remain contractually obligated to pay royalties to QUALCOMM under their license agreements with us, including for sales of iPhones to Apple." Now, taking the legal battle against Apple to next level, the smartphone chip giant recently filed a suit against four prominent Taiwanese CMs, including Foxconn. The latest lawsuit salvo could be one big factor which could boost the investor sentiment around QCOM stock. Investors who were long worried about the high legal risks the company faces could have something to feel good about.
It is highly probable that Qualcomm will win this suit. Tim Long of BMO Capital writes "Qualcomm will win this, the question is whether they’ll seek to block the iPhone." Also many on the street believe that this new suit could help the San Diego chipmaker defend itself better in the Apple suit. A Seeking Alpha author in a recent post opines that "this new suit could help preserve substantial free cash flow, and thereby boost share price".
Technicals are falling in place for QCOM stock.
Technicals suggest that the stock looks set for further upward march. We had recently highlighted that QCOM stock had made a breakout above its crucial 50-day Simple Moving Average (SMA). Another bullish signal was pointed out by "Mad Money" host Jim Cramer who stated that share price "has flattened out lately, to the point where it's running just above the top of an ascending triangle pattern." Now, the stock price is just a few cents away from making a bullish crossover with its 100-day SMA. A near-term breakout above the critical long-term 100-day SMA could mean further uptrend in the share price. The bullish scenario is further boosted by the Moving Average Convergence Divergence (MACD) value turning positive few days back. Qualcomm shares presently enjoy strong support levels at the 20-day SMA. The near-term uptrend scenario is further boosted with the current Relative Strength Index (RSI) indicator falling below the overbought threshold of 70. Neither does the Bollinger Band indicator signal an overbought condition.
Qualcomm's long-term growth potential still remains sound.
The lawsuits and litigations have largely dominated the recent narrative of the mobile chip giant with its long-term growth potential neglected. However, the company is expected to keep growing going forward. The company's leadership in emerging 5G technology could go a long way in maintaining its dominant position in the mobile space. Qualcomm's diversification into IoT segment with the NXP Semiconductor (NASDAQ:NXPI) is likely to put the company on a strong footing in multi-billion dollar fields like autonomous driving. The acquisition is expected to be closed by the end of 2017. The NXP semiconductor acquisition is expected to initially add approximately $9.5B in annual revenue to Qualcomm's coffers. Qualcomm is known for major innovations in the telecom technology space and holds one of the best technology patent portfolios in the world.
Qualcomm recently showed off its wireless charging technology for electric vehicles while driving. Wireless charging is an important area of research for carmakers, their suppliers, and start-ups. Electric vehicle charging is another area where Qualcomm plans to diversify. The semiconductor company could be expected to disrupt new fields with their innovation and track record. QCOM stock is an attractive buy based on valuation comparisons to industry standards, forward earnings and impressive dividend yield. Nonetheless, one thing looks fairly likely - Qualcomm (NASDAQ:QCOM) shares look set for a further uptick. If you're risk averse, though, you would do well to sit out of the stock for now as the risks surrounding the stock still persist. Risk-averse investors would be better off waiting till European Union regulators approval decision on June 9 for the NXP acquisition at least before considering to take a position in the stock. However, it would best to go ahead once there is more clarity over Qualcomm's Q3 earnings amidst uncertainty in royalty payments from Apple suppliers.
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