Qualcomm (QCOM, Financial) has been a great performer for investors who have been able to correctly time the stock’s bottom. Qualcomm has appreciated almost 50% since hitting the 52-week low levels earlier in February. Despite the massive gains, I expect Qualcomm to continue moving higher on the back of several tailwinds mentioned below.
Qualcomm is Gaining Momentum
Qualcomm is the largest mobile chipmaker around the globe. However, throughout the last two years, the company has been through numerous major headwinds as it lost market share to trivial players, as well as first part chips from prominent OEMs such as Samsung (XKRX:005930, Financial) , Apple (AAPL, Financial) and Huawei (SZSE:002502, Financial).
On the other hand, the company’s patent licensing business, which accounts for the segment producing most of its profits, was flooded by OEMs as well as regulators who appealed that its fees were too high.
Regardless of those concerns, the company shared year-over-year sales growth of 3% in the last quarter, ending its run of four successive quarters of revenue decline. This was possible mainly due to the strong demand for its superior Snapdragon 820 processor, which was used by companies like Samsung for its Galaxy S7 and Galaxy S7 Edge.
Furthermore, Qualcomm signed new deals with significant Chinese OEMs to resolve disputed payments, which enhanced the revenue generated by its licensing segment.
Qualcomm is well aware of the gradual decline of the smartphone market. Therefore, the company has also entered various other markets such as drones, wearables and connected cars. These markets could deliver boost to its chip manufacturing revenue in the imminent years.
Snapdragon Flight
In the drone market, DJI (LSE: DJI) is the leading compnay. However, the drone market is crowded with many small and large players. When we talk about an autonomous drone, a complete, reliable one is still but a dream.
At present, DJI Phantom 4 is the only autonomous drone in the market and can dodge obstacles autonomously and can follow a person grounded on video tracking alone.
However, a review from Gizmodo suggests that the P4 does not actually fly on its own, as it need some proficiency and experience.
Recently, Meng, founder of ZZR, has packed numerous AI smarts into a new Snapdragon 801 processor that is used in Snapdragon Flight. This has resulted in an actual autonomous drone. This could unlock great opportunities for the entire market, which in turn would benefit Qualcomm.
Conclusion
Qualcomm’s rally over the last few months has been impressive and the stock still has room to run. Qualcomm is spreading its wings in the drone market and it could act as a long-term growth driver for the company. Thus, I think investors who missed out on Qualcomm’s recent rally can still buy the stock.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
Start a free 7-day trial of Premium Membership to GuruFocus.
