Qualcomm stock: options market, technicals point to volatility after earnings

Qualcomm stock price continued its strong downward trend this week, reaching its lowest level since April 30. QCOM has plunged by over 37% from its highest point this year, with its market capitalization falling from $265 billion to $171 billion. 

Qualcomm’s crash has coincided with the ongoing sell-off among other semiconductor companies. The VanEck Semiconductor (SMH) ETF has dropped from $671 to $529, while the iShares PHLX SOX Semiconductor Sector ETF (SOXX) has pulled back from a high of $655 to $490 today. 

Qualcomm stock has dropped ahead of earnings

QCOM stock has been in a strong bearish trend in the past few months as semiconductor and memory companies came under pressure. Nvidia, the biggest name in the industry, remains down by over 17% from its peak. Other companies like Intel and AMD have plunged in this period.

Qualcomm stock will be in the spotlight as the company publishes its financial results. Analysts expect the upcoming results to show that its revenue dropped by 6.68% last quarter to $9.6 billion. Also, its earnings-per-share (EPS) is expected to drop from $2.77 to $2.22. 

Qualcomm plans to address the revenue weakness by hiking prices. Media reports suggest that the company plans to boost prices for all chips going out in September this year. This is important as its products power most devices like smartphones, tablets, and some laptops.

According to Bloomberg, the company says that the price hikes are necessary as it has exhausted its ability to absorb costs from its suppliers. Also, it has faced its hard to find alternative suppliers to lower its prices. 

The price increases should help to support the stock in the near future as analysts predict that its full-year revenue will be lower than what it made a year earlier. Analysts expect the revenue to drop by 3.50% to $42.6 billion this year, followed by $44.18 billion next year.

The risk, however, is that soaring prices may lead to lower demand for smartphones and other devices. 

QLCOM has become a bargain as options market points to a rebound

Third-party data shows that the company has become a bargain. It has a forward price-to-earnings ratio of 15, lower than the sector median of 23. The iShares Semiconductor ETF (SOXX), which tracks the biggest semiconductor companies, has a price-to-earnings ratio of 67. 

Qualcomm also has a forward price-to-cash flow ratio of 12.90, also lower than the sector median of 18.7. 

The options market expects the company to be highly volatile, with the implied volatility rising to 123%. Its put/call open interest has moved to 0.55, a sign that more investors see the stock rising. 

QCOM stock price technical analysis

Qualcomm stock chart | Source: TradingView

Qualcomm share price has plunged from a high of $260 in May to the current $162. Technicals suggest that the stock has more downside. For example, the Percentage Price Oscillator (PPO) has continued falling. Also, the Relative Strength Index (RSI) has continued falling and is nearing the oversold level of 30. The RSI suggests that it has more downside before it becomes oversold.

On the positive side, the stock has formed a falling wedge pattern, which is made up of two falling and converging trendlines. This pattern often leads to a bullish breakout.

As such, these technicals suggest that the stock will be highly volatile after its earnings report. The key levels to watch will be at $150 and $180.