Shares of Qualcomm (QCOM 0.50%) rose 12.1% in August, according to data from S&P Global Market Intelligence. The mobile phone chipmaker's August results were all the more remarkable considering that the stock had already increased 15.8% in July.
Qualcomm released positive earnings on July 30 with beat analyst expectations, and also announced a new licensing deal with Chinese smartphone giant Huawei on its earnings call. However, Qualcomm received even more good news in a court battle in August, and positive analyst sentiment continued to pour in.
In early August, Qualcomm won an appeal in federal court, which overturned a 2019 ruling from a suit brought by the Federal Trade Commission. The FTC had advocated Qualcomm renegotiate its licensing deals with smartphone vendors, which many Qualcomm clients have resisted as unreasonably high. By throwing out last year's ruling, Qualcomm can continue its practice of charging smartphone vendors a license fee based on the price of the phone, which should theoretically benefit Qualcomm in the 5G era, as 5G phones may have higher prices than 4G.
Coupled with Huawei's caving on finally paying Qualcomm license fees, the positive court ruling solidifying Qualcomm's business model sent shares further up during August. In addition, one analyst postulated that Qualcomm and other large semiconductor stocks would be rerated higher as investment dollars came out of Intel (INTC -0.30%) due to its recently disclosed troubles producing 7nm chips.
Qualcomm is extremely well-positioned in the 5G era, not only because of its leading phone modems, but also because 5G may enable more fixed wireless broadband modems that would also use Qualcomm 5G chips.
There is a potential headwind in the near term, however, as the U.S. government has imposed stricter restrictions on sales of any U.S. made chip to Huawei; however, many analysts believe that Qualcomm will at least be able to get an export license that allows the company to supply Huawei with mobile chip sets going forward.
Overall, Qualcomm still looks like a solid bet to benefit from 5G over the next decade, although investors should be prepared for more court challenges to its monopoly-like position over wireless technology, as well as U.S.-China trade war headwinds along the way. Overall, I still think the positives outweigh the negatives for Qualcomm going forward.