Shares of Qualcomm (QCOM) keeps trudging toward all-time highs despite the noted weakness ahead.
Shares of the semiconductor company gained strongly in Thursday morning trading, peaking at nearly $90, a record for the stock that bests even its dot com bubble heights that saw the stock gain thousands of percent from 1999 to 2000.
The solid gain comes in spite of lowered forecasts for the coming quarter.
The company now expects total shipments of 3G, 4G and 5G-capable devices (including products other than smartphones) to be in a range of 1.8 billion to 1.9 billion this year after previously guiding for shipments of 1.85 billion to 1.95 billion.
"We had overall market weakness in China, but we are also seeing in the premium tier a pause as 5G has launched," Qualcomm president Cristiano Amon explained. "[This is] consistent with some of the other OEMs that report their earnings and they talk about dynamics on the premium tier in the market."
Yet, the leap in shares would suggest this cut is being overshadowed by the growth ahead for 5G and the hefty payment Apple (AAPL) agreed to in a settlement that alleviated years of court battles hanging over the stock. The payment to Qualcomm is expected to come in between $4.5 billion and $4.7 billion.
Shares have rocketed over 50% upward since the announcement of the settlement.
"5G will be a significant opportunity for Qualcomm, both within cellular and in other industries," CEO Steve Mollenkopf told analysts Wednesday evening. "It is the key technology enabler for the future of the Internet and having a strong and differentiated technology position is an important asset for our shareholders."
"I am pleased to report that the rollout of 5G has officially begun," he added.
The announcement of the paradigm shift in technology is what is clearly keeping the market aboard as the stock continues to test record levels.
"[The] near-term earnings challenges from smartphone industry weakness [are] unlikely to materially change the 5G bull case," J.P. Morgan analyst Samik Chatterjee said in a note to clients. "The softer than expected end-market conditions are unlikely to impact the positive investor sentiment relative to Qualcomm's leadership in the imminent transition to 5G for the smartphone market, which the recent agreement with Apple and Intel's (INTC) exit from the baseband modem business have further reinforced for investors."
Chatterjee maintained his "Overweight" rating on the stock and a $96 price target for shares.
"The recent settlement with Apple allows investors to focus on Qualcomm as a pure-play 5G investment," he concluded.
Still, one might beg the question as to why earnings growth remains tempered after such a landmark settlement.
Morgan Stanley analyst James Faucette pointed to Huawei, the Chinese smartphone giant, as the key remaining regulatory and legal risk holding shares back. Certainly the company's comments on China help build that case.
"[Huawei] is really the only growing handset OEM, and in 2018 likely accounted for more than 100% of industry growth (it grew but the rest of the industry shrank slightly) and 2019 looks like it will be similar," Faucette explained. "By virtue of using primarily chipsets from its wholly-owned subsidiary HiSilicon, and not paying full royalties, it is hurting Qualcomm's ability to show as much immediate benefit as some might have imagined."
Company management touched upon the ongoing negotiations with Huawei that may be able to smooth the road ahead for the stock as the 5G shift comes into view, noting that a settlement with Apple strengthens their position.
"In terms of the negotiations with Huawei, they're ongoing," Qualcomm executive vice president Alex Rogers told analysts. "We feel that the Apple resolution enhances our ability to resolve issues with Huawei. So we think that's a good thing."
For the time being, the company only holds an interim agreement for a $150 million payment, far below what could be expected with an Apple-like agreement.
Regardless, analysts still seem to think Qualcomm's remaining overhangs are manageable and worthy of taking on, especially as a U.S.-China trade agreement is rumored to be on track for mid-May, according to White House sources.
"Owning QCOM has always required a bit more mettle than some others," Faucette concluded. "But we think that at current levels, ownership is merited, with an eye towards our $95 Base case, and ultimately our $120 Bull case."