New Qualcomm Trade Idea After OpenAI News Drives Surge

On Friday, Qualcomm (QCOM)  ran 14.9% to close at $148.85. 

The reason? Intel (INTC)  was hot as heck post-earnings on terrific guidance. Almost all of the semis were hot literally all week, from designers like Advanced Micro Devices (AMD)  to firms like Arm Holdings (ARM)  to memory. The space has run wild.

Ahead of the U.S. open, QCOM is up sharply again on Monday morning. According to TF International Securities analyst Ming-Chi Kuo, after his latest industry checks, OpenAI is now working with MediaTek and Qualcomm in order to develop modernized smartphone processors. 

Luxshare would be the exclusive system co-design and manufacturing partner. Mass production of these new chips is expected in 2028, according to Kuo. He added that MediaTek and Qualcomm are now processor co-development partners and that benefit could be realized should long-term replacement demand develop broadly.

That Said...

Also, on Monday morning, analyst CJ Muse of Cantor Fitzgerald reiterated his "hold" rating on QCOM as well as his $135 target price, which is now well below the last sale.

Muse is rated at five stars out of five at TipRanks, and is ranked as one of the very best analysts on Wall Street. He is not a "run of the mill" five-star analyst. TipRanks has him as number 11 of the 12,206 analysts that the service tracks. Over the past two years, his picks have had a 77% success rate producing an average return of +73.9%.

Earnings

Qualcomm is set to report the firm's fiscal second quarter financial results after the closing bell this Wednesday under cover of many of the hyperscalers. 

While Wall Street focuses on the "Magnificent Seven," consensus for QCOM is for an adjusted $2.56 a share on revenue of $10.6 billion. Sounds gaudy? Not really. 

Those numbers, if realized, would compare poorly to the EPS of $2.85 posted for the year-ago period on year-over-year revenue "growth" of -2.4%. Additionally, of the 28 sell-side analysts that cover QCOM, 21 have reduced their estimates since the quarter began, while only one has increased his estimate and six estimates have been left unrevised. To put it bluntly, the news is attention grabbing, but nobody on Wall Street is all that impressed with Qualcomm.

The Chart​

The game on Monday in QCOM is going to be whether or not the stock can take back its 200-day SMA, currently close to $157 and hold that line. ​

The shares fell out of bed in very early January coming out of a rising-wedge pattern of bearish reversal. The nasty downtrend here is illustrated through the use of a Raff Regression model.

Recently, the shares took back their 50-day SMA and 21-day EMA. That 21-day EMA is about to cross over the 50-day SMA, which should provide at least some algorithmic and swing-trader pop on Monday morning. Taking the 200-day line just after taking the 50-day line would force portfolio managers with exposure to add.

Looking at the indicators, relative strength is now approaching technically overbought levels as the daily MACD moves into a posture where all three components are bullishly positioned. 

My feelings? QCOM is probably a little undervalued at 13-times forward looking earnings. That said, the 200-day line is probably a good spot for a short-term trade from the short side. That is my intention if the trade is still good once this piece hits publication as I cannot front-run my own ideas.

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At the time of publication, Guilfoyle was long AMD equity.