Chipmaker Qualcomm (NASDAQ:QCOM) revealed a big jump in orders on one of its major product lines, yet the stock is down in today’s session. It was indeed a puzzling proposition. Qualcomm revealed that its future automotive business increased to a whopping $30 billion in orders placed. That represents an extra $10 billion in orders brought in since July and traces back mainly to the Snapdragon Digital Chassis chip.
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The Snapdragon Digital Chassis chip can provide several highly desirable functions, from cloud connectivity to entertainment options to even autonomous driving systems.
How does a company lose on news of massive new orders placed? That’s unclear, but one thing’s for certain: Qualcomm has a lot of business going its way in an era when chips are still hard to come by. I was bullish on Qualcomm back in April, and I remain so today. There is some risk here, but based on what we know so far, things do look reasonably bright.
Investor Sentiment Metrics Could be Worse for QCOM Stock
At Qualcomm, some investor sentiment metrics are through the roof. Others are a bit less enthusiastic. Qualcomm currently Scores a perfect 10 on TipRanks’ Smart Score. That’s the highest level of “outperform,” and it’s also the highest score available. That suggests clear confidence that Qualcomm will ultimately do better than the broader market.
However, that confidence isn’t universally shared within the walls of Qualcomm itself. Insider trading at Qualcomm is a mixed bag, both recently and over the last 12 months. The last informative transaction of any sort came five months ago, with a $232,064 sale by CCO James Cathey.
While there haven’t been sufficient informative sales or purchases to do a full analysis, the aggregate numbers offer some insight. Over the last three months, insider purchasing has outpaced sales by five transactions to three.
The last 12 months were an even more narrow proposition. Insiders racked up 24 buy transactions against 22 sell transactions. That shows almost exactly as much interest in selling as in buying.
Qualcomm is in a Very Solid Position
It’s hard to see why investors are rebelling against Qualcomm. Qualcomm is in a very solid position right now; they’re chipmakers in the middle of a chip shortage. With projections from Counterpoint Research suggesting the chip shortage won’t abate until at least late in the third quarter of this year, that suggests Qualcomm should continue to benefit from having a rare product.
Counterpoint’s projection is extremely optimistic. Pat Gelsinger, Intel (NASDAQ:INTC) CEO, expects the chip shortage to last into 2024, or at least that’s what was projected back in April. Even Qualcomm’s own CEO, Cristiano Amon, looks for the shortage to relent starting in early 2023. Still, that’s at least three months of continued shortage. With a huge new slug of extra orders in hand, Qualcomm looks good to clean up this entire period.
However, there’s a problem. These are orders. They’re commitments to buy. While it’s unclear just what terms were struck under these orders, orders can be canceled. The automotive market is a badly troubled market right now. As of late August, used car prices have fallen for four consecutive months.
With interest rates rising substantially for loans, that may continue to keep car sales low, just for completely different reasons. Previously, supply issues hurt car sales. Now, demand issues will step in as financing a car becomes increasingly difficult. Whether it’s supply or demand, the results are similar, and that could do some unpleasant things to previously-planned purchase orders.
That could go quite some way toward explaining how Qualcomm can get a massive slug of new business yet find itself actively spurned by investors. Investors may be looking for those orders to dry up before anyone actually pays for them, given current market conditions.
That’s strictly speculative, of course. It’s also not the only arrow in Qualcomm’s quiver, though these may also give investors some pause. The company recently introduced a new innovation center and “5G education initiative” in Southern Taiwan. It also announced the latest set of teams to compete in the Qualcomm Innovate in Taiwan Challenge.
Geopolitical buffs, meanwhile, may have gulped at that one. The current state of affairs between Taiwan and mainland China may be charitably described as “contentious.” A Brookings Institute report noted that there was “…public pride in Taiwan’s resilience in the face of China’s escalating pressure.” That’s a report from late August, which suggests things haven’t suddenly gotten better.
What is QCOM Stock’s Price Target?
Turning to Wall Street, Qualcomm has a Moderate Buy consensus rating. That’s based on 11 Buys and five Holds assigned in the past three months. The average QCOM stock price target of $189.82 implies 57.6% upside potential. Analyst price targets range from a low of $150 per share to a high of $250 per share.
Conclusion: There’s Reason for Optimism for QCOM Stock
Take all the factors facing Qualcomm right now, and there’s still quite a bit of reason for optimism. Right now, Qualcomm shares are a good deal. It’s not only well under its lowest price targets, but it’s also just a bit off its lows for the year.
The company has also booked substantial new revenue, as long as the purchase orders complete effectively. There’s little reason that won’t happen, especially in the near term. Granted, the automotive market is volatile. Yet, it likely isn’t so volatile that businesses will cancel orders en masse in the next few weeks.
Qualcomm is also expanding, with new educational opportunities and potential new suppliers in Taiwan. Granted, Taiwan is a bit of a powder keg looking for a spark right now, but again, things likely aren’t so volatile that they’ll go off in the next few weeks. They may, certainly, but the odds are unlikely.
Finally, the chip shortage is likely to continue, at least through the short term. There are signs of declining pressure in the chip market currently. However, most believe that there are at least another six months or so before the issue can be righted.
That’s why I’m bullish on Qualcomm. It’s in an excellent position right now. Yes, pretty much everything that makes its position excellent could turn on a dime, but for right now, things are almost as good as they can get. Watch this one carefully. However, there’s little doubt Qualcomm is running on all cylinders. Today, anyway.
