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3 Reasons to Buy Qualcomm Stock Near Its All-Time High

Qualcomm (QCOM 0.89%) has both prospered and suffered for its position in the smartphone market. The stock has experienced massive growth and stagnation as market dominance presented both market and legal challenges from competitors and antitrust authorities.

Nevertheless, Qualcomm has once again become a force in the market, selling for just below its all-time high of nearly $189 a share. Three factors have contributed to semiconductor stocks returning to growth path. Let’s take a closer look at them.

Image source: Getty Images.

1. 5G strength

As things stand, manufacturers cannot build a 5G phone without a critical smartphone chipset from Qualcomm. Despite this seemingly dominant position, this is a concern for investors.

in 2019, Apple (AAPL 2.80%), which had long sued Qualcomm over its wireless patents, bought Intel‘s smartphone modem company. It supposedly made this move to develop its own chipset, which knocked out Qualcomm.

While Apple accounts for nearly 50% of US smartphone sales, according to Counterpoint, Apple’s global market share is close to 15%. Qualcomm shares rose last month as it cited this fact, showing it can thrive with or without the iPhone maker.

The company also has a threat of Nvidia (NVDA -0.96%). Nvidia tried to buy soft sofa‘s Arm Holdings, a company from which Qualcomm licenses a number of chip designs. Qualcomm opposed this acquisition for fear that Nvidia would gain control over the licensing of this critical component. Fortunately for Qualcomm’s shareholders, antitrust agencies appear to be looking to block this merger and eliminate a significant threat.

In addition, Grand View Research predicts a compound annual growth rate of 69% through 2028 for the smartphone chipset industry. This growth rate gives Qualcomm significant potential for success even with these threats.

2. Diversification away from smartphone modems

In addition to 5G, Qualcomm has also started diversifying its core businesses, and it is increasingly looking like an under-the-radar metaverse stock. Overall, Qualcomm achieved approximately 38% of its revenue outside of its core handset market in 2021.

With the advent of self-driving cars, Qualcomm has begun to use its technology for automotive applications. This technology can connect cars to the cloud, other vehicles, mobility services and other applications. In addition, with the recent acquisition of Veoneer, the company can now integrate Veoneer’s Advanced Driver Assistance Solution (ADAS), enhancing Qualcomm’s software capabilities in this industry. The automotive sector accounted for just under $1 billion in revenue for Qualcomm in fiscal 2021.

The second largest segment is now also IoT. With IoT, it leverages its technology to offer smart platforms designed to reduce both costs and development times. The solutions are suitable for home, commercial, healthcare and other applications. In fiscal 2021, IoT accounted for approximately $5 billion of the company’s total $27 billion revenue.

In addition, Qualcomm’s recent acquisition of Nuvia, which specializes in CPU and technology design, may enhance these technologies. It could also boost its radio frequency (RF) front-end business. This division, which consists of chips designed to receive radio signals, generated additional revenue of $4.2 billion in 2021.

3. Qualcomm’s Rating

Despite such successes, investors may not yet fully appreciate Qualcomm’s potential. Admittedly, Qualcomm is up more than 50% since October. Much of that increase, however, only offset Qualcomm’s declining share price for most of 2021. The year so far, Qualcomm’s stock is up about 20%, slightly less than Qualcomm’s stock. S&P 500the total return.

QCOM data by YCharts

Still, Qualcomm shares are being sold for a P/E ratio of 23. This seems cheap, as non-GAAP earnings are up 55% in 2021. In addition, the two companies that have recently threatened their market dominance, Apple and Nvidia, are selling for 31 times and 94 times profits, making Qualcomm seem all the cheaper.

The state of Qualcomm

Despite some real challenges, Qualcomm remains poised for prosperity despite a near-record share price. Staying ahead of the competition remains an ongoing battle for Qualcomm. Nevertheless, the growth rate of the 5G industry, increasing product diversification and reasonable valuation bode well for the company and its shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium consulting service from Motley Fool. We are fur! Questioning an investment thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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