Question: How would you feel if you owned Qualcomm stock and it dropped by 40% or more in the coming months? It may sound extreme, but such a scenario has occurred before – and it could happen again. So far this year, Qualcomm stock has performed reasonably well, rising by about 5% since early January, while the S&P 500 declined by about 2% during the same period. However, several near-term challenges could affect Qualcomm, including the company’s increasing exposure to China, growing macroeconomic concerns in the U.S. following President Donald Trump’s tariffs on key trading partners, and, to some extent, Apple’s push into the mobile modem space. We believe there is a possibility that the stock could drop below $100 per share. Here is why investors should be concerned.
Here’s the point: during an economic downturn, QCOM stock could suffer significant losses. Recent evidence from 2022 shows that AMD stock lost over 40% of its value within just a few quarters. Could Qualcomm’s roughly $160 stock slide to below $100 if a similar scenario were to occur? Of course, individual stocks tend to be more volatile than a diversified portfolio – so if you seek growth with less volatility than a single stock, consider the High-Quality portfolio, which has outperformed the S&P 500 and delivered returns exceeding 91% since its inception.
Why Is It Relevant Now?
Qualcomm has experienced increased demand in China, fueled by the rising popularity of premium Android devices. Its licensing business is also gaining momentum, having secured long-term agreements with Chinese manufacturers Honor and Shenzhen Transsion Holdings. Notably, Chinese companies contributed 46% of Qualcomm’s total revenue in the last fiscal year. Nevertheless, this exposure to China carries significant risks, especially as the U.S.-China trade war intensifies under Donald Trump. The new administration is expected to raise tariffs on Chinese imports from 10% to 20%, which could affect Qualcomm’s revenue streams directly or indirectly if Chinese firms retaliate by imposing their own restrictions or reducing purchases of U.S.-made components. Additionally, some of the current demand from China might be temporary, as OEMs could be stockpiling chips in anticipation of future trade tensions.
Recently, Trump proposed a “25% or higher” tariff on all semiconductor chips imported into the U.S. Such measures could hurt Qualcomm, which depends heavily on Chinese manufacturing and exports. Trump’s aggressive actions on tariffs and immigration have also raised concerns about a potential resurgence of inflation. Consequently, the U.S. economy might face a downturn – possibly even a recession – as discussed in our analysis here on the macro picture. When combined with heightened geopolitical uncertainty resulting from bold policies by the new Trump administration, these factors represent critical risks. Moreover, with the Ukraine-Russia conflict still ongoing and trade remaining uncertain, tariffs tend to increase import costs, typically leading to price hikes, reduced disposable income, and weaker consumer spending. This scenario could adversely affect AMD’s core CPU business, as delays in PC and laptop purchases may reduce chip demand.
Apple’s development of its own modem chips also poses a risk to Qualcomm. The recently launched entry-level iPhone 16e features an Apple-designed modem, the Apple C1, which replaces Qualcomm’s chipsets. Although Qualcomm does not break out revenue by customer, estimates suggest that Apple accounts for over 20% of its total sales – a significant portion of Qualcomm’s revenue. While we expect Apple’s transition to its own chips to be gradual, the impact on Qualcomm’s margins could be substantial, given that Apple’s devices typically require cutting-edge technology and premium components. Although this risk has been recognized for some time, it continues to present a downside for Qualcomm’s financial performance.
QCOM stock has experienced a performance that was slightly better than the benchmark S&P 500 index during some recent downturns. Concerned about how a market crash might affect QCOM stock? Our dashboard How Low Can Qualcomm Stock Go In A Market Crash? provides a detailed analysis of the stock’s performance during and after past market crashes.
Inflation Shock (2022)
• QCOM stock declined by 44.9% from a high of $188.69 on 17 January 2022 to $103.88 on 3 November 2022, compared to a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-crisis peak by 14 May 2024
• Since then, the stock has risen to a high of $227.09 on 19 June 2024 and is currently trading around $160
Covid Pandemic (2020)
• QCOM stock dropped by 32.7% from a high of $90.56 on 19 February 2020 to $60.91 on 22 March 2020, compared to a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-crisis peak by 8 June 2020
Global Financial Crisis (2008)
• QCOM stock decreased by 48.2% from a high of $56.37 on 17 August 2008 to $29.21 on 20 November 2008, compared to a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-crisis peak by 10 February 2011
Valuation
Qualcomm’s Revenues have experienced steady growth in recent years, and the stock is trading at a relatively reasonable 17x forward earnings multiple. The company’s top line has grown at an average rate of 7.2% over the past three years, although growth rates are expected to slow significantly by 2026, with a larger portion of Apple’s business likely shifting away. Additionally, fundamentals can change rapidly amid the ongoing trade war.
Given this slowdown in growth and broader economic uncertainties, ask yourself the question: Do you intend to hold your QCOM stock now, or will you panic and sell if it begins to drop to $120, $100, or even lower levels? Holding onto a declining stock is never easy.Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has integrated the Trefis HQ Portfolio in this asset allocation framework to provide clients with better returns and reduced risk compared to the benchmark index; offering a less volatile experience, as reflected in the HQ Portfolio performance metrics.
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