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Why Qualcomm Stock Gained 12.8% in June

By Keith Noonan – Updated Jul 6, 2020 at 8:36AM

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5G momentum has helped push the semiconductor stock into positive territory this year, with shares now up roughly 4% in 2020.

What happened

Shares of Qualcomm (QCOM 4.39%) gained 12.8% in June, according to data from S&P Global Market Intelligence. The semiconductor stock moved in conjunction with positive momentum for the broader market and benefited from news about the company's next-generation connectivity chips and positive coverage from analysts. 

^SPX Chart

^SPX data by YCharts.

Qualcomm announced on June 3 that it had completed validation processes for its 9205 LTE modem. The connectivity chip set is designed for Internet of Things (IoT) applications and packages low-power consumption and a small form factor that makes it an ideal fit for devices including health monitors, security systems, and smart-city sensors. Reports also emerged later in the month that manufacturing was ramping up for some of the company's other next-gen connectivity chips.

A chip on a circuit board.

Image source: Getty Images.

So what

Digitimes reported on June 19 that Taiwan Semiconductor Manufacturing (TSMC) was beginning production on Qualcomm's Snapdragon X60 modem, which is expected to power 5G connectivity features for Apple's iPhones this year. Digitimes then reported on June 22 that Qualcomm was increasing production of its 7-nanometer chips for 4G, indicating a shift to a smaller, more efficient offering in 4G that could help it improve market share in the category. 

News about validation for the 9205 LTE IoT modem and the ramping up of production for other chips highlighted important growth opportunities for Qualcomm's connectivity business last month. The company's share price also appears to have benefited from favorable analyst coverage.

Rosenblatt analyst Kevin Cassidy published a note on the stock on June 5, giving the company a buy rating and issuing a one-year price target of $105 per share. Susequehanna's Christopher Rolland maintained a positive rating on the semiconductor stock and hiked his price target from $95 to $105 in a note published on June 12. Morgan Stanley's Joseph Moore also gave a bullish take on Qualcomm last month, upgrading the stock from an equal-weight rating to overweight and boosting his price target from $83 to $102.

Now what

Qualcomm stock has continued to climb early in July's trading. The company's share price is up roughly 2% in the month so far.

QCOM Chart

QCOM data by YCharts.

Qualcomm could see significant tailwinds from the introduction of 5G modems for phones and other hardware to support the next-generation networking technologies, but important customers (including Apple) are also looking to move away from depending on the company's chips. This dynamic makes it difficult to map out how it will perform over the next five years.

The company is scheduled to report third-quarter results after the market closes on July 29. Qualcomm trades at 25 times this year's earnings and has a dividend yield of 2.7%.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Taiwan Semiconductor Manufacturing. The Motley Fool owns shares of Qualcomm. The Motley Fool has a disclosure policy.

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Stocks Mentioned

QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$122.37 (4.39%) $5.15
Apple Inc. Stock Quote
Apple Inc.
AAPL
$146.10 (2.56%) $3.65
Taiwan Semiconductor Manufacturing Company Limited Stock Quote
Taiwan Semiconductor Manufacturing Company Limited
TSM
$72.81 (5.14%) $3.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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