We believe Qualcomm (QCOM) is uniquely positioned to benefit as 5G goes mainstream, which is one of our key themes for 2022, states Jim Kelleher, an analyst with leading independent research firm, Argus Research.
In a highly positive FY21, Qualcomm benefited from multi-year licensing agreements and Snapdragon processor sales to major Asian handset makers, as well as continued momentum with Apple (AAPL).
Although Apple may in time seek to use its own 5G modems to displace Qualcomm chips, that change is not imminent. And while chip sales to Apple are meaningful, the licensing agreement with Apple in our view is the more important revenue and profit contributor.
Qualcomm — which has been in near-constant litigation in the two decades we have followed the company — has put all or most legal issues behind and can focus on leading the 5G market in a multi-year rollout.
We expect 5G to be a huge market driver and profitable revenue opportunity for Qualcomm, which brings existing market strengths into a maturing 5G device market. The broad ramp-up of 5G handsets that began late in 2020 should continue to gather momentum into calendar 2022 and beyond.
A Look Back at 2021's Top Performers
Jim Kelleher chose Applied Materials (AMAT) as his Top Pick for 2021. Here's his update on the stock — which rose 85% last year.
Applied Materials semiconductor solutions business in fiscal 2021 grew faster than the overall semiconductor industry. And order backlog rose to a record $11 billion, signaling that demand will remain robust long after supply aligns with demand. As digital transformation of the economy continues to drive strong secular demand for semiconductors, AMAT is seeing broad-based strength across its semiconductor operations.
Accelerating growth is being driven by secular transitions such as cloud and AI. Our blended valuation estimate is in the $220s, in a now steadily rising trend. Including the current dividend yield of about 0.7%, appreciation to our 12-month target price of $190 (raised from $155) implies a risk-adjusted total return greater than our forecast return for the broad market and is thus consistent with a "buy" rating.