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Why Qualcomm Stock Is Falling Today

By Anders Bylund - Feb 4, 2021 at 11:28AM

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The semiconductor titan's stock flew too high, setting it up for a correction no matter what last night's earnings report looked like.

What happened

Shares of semiconductor giant Qualcomm (QCOM -6.62%) fell as much as 10.5% in Thursday's early trading. After the close Wednesday, the company reported strong earnings for the first quarter of fiscal year 2021 and set up second-quarter guidance targets well above the current Street projections. No, that's not a huge typo. Qualcomm's stock price really did fall amid a flurry of objectively good news.

So what

Qualcomm's first-quarter sales rose 62% year over year to $8.24 billion. Adjusted earnings more than doubled from $0.99 to $2.17 per diluted share. The revenue result was right in line with Wall Street's consensus estimates, but your average analyst would have settled for earnings near $2.08 per share on revenue.

Looking ahead, Qualcomm expects second-quarter sales to rise approximately 46% year over year to $7.6 billion. Adjusted earnings should land near $1.65 per share, an 88% jump from the year-ago period's result. Here, analysts had been expecting revenue of roughly $7.1 billion and earnings in the vicinity of $1.57 per share.

A pile of broken and burned microprocessors

Image source: Getty Images.

Now what

The results were solid, and management sees even better days ahead, so why are Qualcomm's shares plunging today? Well, it's complicated -- and that's exactly the point.

This business update inspired a mix of raised and lowered analyst price targets with a handful of upgrades and downgrades thrown in for good measure. The bulls focused on the headline numbers and ongoing boom in 5G networking orders. The bears zoomed in on limited manufacturing capacity across the semiconductor industry and historically high share prices. Qualcomm's stock has gained 69% over the last year, and that return includes today's sharp correction.

The price correction makes sense since Qualcomm's stock had been racing ahead at full steam for a long time, but that's not the whole story. Given Qualcomm's proven leadership in smartphone chipsets and 5G networking solutions, I would side with the bullish view of this earnings report. Qualcomm may be richly valued, but the company has earned that premium through impressive business results.

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Stocks Mentioned

QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$130.45 (-6.62%) $-9.24

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