The stock market has rewarded many semiconductor companies handsomely in 2020. You can certainly place Qualcomm (QCOM) on the list. The chip giant’s share price has increased by 67% year-to-date.
Much of the QCOM bull case has rested on the 5G opportunity. After all, Qualcomm is the world’s largest mobile chipmaker. As the fast-data low-latency networks ramp up over the next few years and huge swathes of the global population upgrade their phones, Qualcomm is set to be a prime beneficiary. The company has multi-year license agreements with major handset makers including Apple and Samsung and boasts over 100 5G contracts.
Assessing Qualcomm’s outsized gains, J.P. Morgan analyst Samik Chatterjee believes “Qualcomm shares have reacted positively to the company successfully leveraging the 5G smartphone opportunity.” However, taking this into consideration, Chatterjee wonders how much upside is left from the 5G exposure.
Luckily for Qualcomm, the company has other significant “revenue drivers.”
Chatterjee estimates that the “combination of smartphone baseband as well as adjacent market opportunities will drive material upside for QCT revenues relative to consensus.” This should also result in roughly $1.4 billion more revenue than the analyst’s previous estimate for FY22.
These “adjacent markets” are for RFFE (rf front end) in smartphones, automotive, and IoT (internet of things).
While Chatterjee forecasts a 26% CAGR (compound annual growth rate) for 5G based sales between FY2019 and FY2022, RFFE smartphone is anticipated to exhibit a 40% CAGR, with Automotive at 25%, and an additional 8% for IoT.
These figures are based on the assumption that Qualcomm takes a big chunk of revenue share from each SAM (service addressable market).
These include a 38% share of the handset baseband market, roughly a quarter of the Automotive market, with an additional 16% share of both the IOT SAM and RFFE smartphone market.
Accordingly, the 5-star analyst rates QCOM an Overweight (i.e. Buy), while raising the price target from $160 to a Street high of $185. The revised target implies upside of 28% from current levels. (To watch Chatterjee’s track record, click here)
Chatterjee is broadly in line with the rest of Wall Street, which has assigned QCOM more Buy ratings than Holds over the past three months — and sees the stock growing about 10% over the next 12 months, to a target price of $158.83. (See Qualcomm stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.