Is The Downside Risk Huge Now For QUALCOMM, Inc. (QCOM) Stock?

QUALCOMM, Inc. (NASDAQ:QCOM) stock is trading near its 1 year low again. Is QCOM stock headed much lower from here?

Is The Downside Risk Huge Now For QUALCOMM, Inc (QCOM) Stock
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Shares of Qualcomm Inc (NASDAQ:QCOM) have failed to shrug off the recent weakness, which had lead them to a 1 year low few days back. QCOM stock is presently trading very near to its 1 year low and the fears of stock hitting a new low have increased. The announcement of Qualcomm president Derek Aberle stepping down last week may have come at the wrong time. The bears suggest this news could pile on more pressure on Qualcomm stock which is back again at the crucial $52 level after the last trade. With the announcement of a big executive leaving the company during the time of turmoil, has the downside risk in Qualcomm shares increased? Is QCOM stock going down further?

Some analysts suggest Qualcomm may be losing ground in its legal battles.

Analysts from investment houses of Bernstein and William Blair suggest the departure of Derek Aberle from the company comes at the wrong time increasing the downside risk and this could be a bad omen for the stock. They also seem to suggest that the smartphone chip giant's legal battles with Apple (NASDAQ:AAPL) and other regulators could be headed for a negative outcome. Stacy Rasgon of Bernstein says "we are hard-pressed to imagine worse timing to exercise such an action, and the market is likely to view it as a clear negative given the deteriorating situation with AAPL and other licensees. At a minimum it suggests to us that the pressures at the company are likely to get worse before they get better (otherwise why leave now?)." Anil Doradla of William Blair too echoed a similar tone stating this announcement makes them very skeptical about the company's licensing business prospects.

However, some analysts came in support of the chipmaker with the likes of Stifel Nicolaus’s Kevin Cassidy and Rod Hall of J.P. Morgan downplaying the announcement and its impact on the stock. In a note, Rod Hall wrote: "While Mr. Aberle’s departure is coming at a challenging time for Qualcomm, we don’t expect any material impact on the company’s operations or its ongoing lawsuits because of it." Qualcomm bulls believe that Mr. Aberle's successor EVP and QTL president Alex Rogers is very well capable and prepared to steer the company amongst the legal battles it faces. They seem confident that the company has been preparing for this transition for some time now.

Short interest in Qualcomm sees a massive dip.

The recent downtrend in Qualcomm shares has resulted in the short interest in the stock seeing a massive dip. QCOM stock featured among the top negative movers in the latest short interest update released last week. The short interest in Qualcomm shares fell by 22.5% from 24.72 million shares to 19.15 million shares. As a percentage of float, short interest in Qualcomm came in at only 1.3%, the lowest in the last three months. The days to cover stood at 2 days. The drastic fall in short interest in QCOM stock could be an another indication that the investor sentiment has changed and the downside risk from here could be limited. However, the departure of Mr. Aberle could change the scenario and one needs to have a close look at the next release of short interest data to gauge the investor sentiment better.

QCOM stock is facing stiff resistance.

Amid the recent weakness in QCOM stock, the technical outlook has not been that encouraging. The stock is currently facing a resistance from its short-term 20-day Simple Moving Average (SMA). The 20-day SMA presently stands at 52.71. The recent developments have put more downward pressure on the share price with the stock trading near its one-year low price. Further, the stock presently trades below its all key SMAs, be it the 50-day, 100-day or the long-term 200-day SMA. The stock enjoys a strong support at $52 level, it had recently bounced back after falling below $52 marginally for the first time in the last one year. The next level of support after this is at the $50 level which the stock has not breached in the last 18 months. QCOM Technical chartThe continuous extension of tender offer for NXP Semiconductor (NASDAQ:NXPI) also does not bode well for the stock which is testing Qualcomm shareholder's patience. In spite of the challenges, Qualcomm stock with a 4.3% dividend yield is very cheap and at these valuations could well be a good value buy. It's not all gloom and doom for the company. Some reports suggest that the chipmaker's next flagship processor Snapdragon 845 seems to be already booked by Samsung for its Galaxy S9 and is not letting anyone else get their hands on the chip first. Qualcomm's chip business could get another boost if the recently unveiled Centriq 2400 manages to capture the cloud data center opportunity. QCOM stock valuations compared to the growth opportunities look very attractive but risks persist. Investors should closely monitor the charts to make a better assessment of downside risk from here.

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Sreekanth Anasa Sreekanth Anasa   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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