Shares of Qualcomm (NASDAQ:QCOM) have been on a steady uptrend over the past twelve months, mostly because investors have expressed optimism about the smartphone chipmaker’s ability to capitalize on the forthcoming 5G boom in 2020 and beyond. In 2019, Qualcomm stock rose 55%, marking the stock’s best annual return since 2004.

Now, in 2020, shares are up another 5% as multiple Wall Street analysts have jumped on the bandwagon. Citi, Mizuho, Bank of America, and Canaccord Genuity are among of handful of sell-side firms that have sounded a bullish tone. Shares have risen in response.

But, here’s the catch: all those firms, save Canaccord, have a price target of $110 or less. Indeed, the consensus sell-side price target on QCOM is $98 according to YCharts, and $100 according to TipRanks.

That’s just 7.5% above where shares today. Thus, while Wall Street is saying “Buy” Qualcomm, they are also saying that further upside potential over the next twelve months is limited.

I couldn’t agree more. Qualcomm is positioned to have a big 2020 through 2024/25 because of 5G tailwinds, but a lot of that growth is already priced in. Sure, the stock won’t fall against this favorable growth backdrop. But, it won’t roar higher, either, because the valuation is already full.

As such, Qualcomm is a fine investment for 2020. But not a great one. You’ll get 5% to 10% share price appreciation plus a 2.5% yield. That’s good, but nothing to write home about.

QCOM Stock Will Rise in 2020

Qualcomm stock will rise in 2020 because the company will gain operational momentum thanks to rising 5G tailwinds.

Long story short, Qualcomm is at the epicenter of all things smartphones. They make the chips that power smartphones, and they are the best in the world at doing that. Just ask Apple (NASDAQ:AAPL), who tried hard to fight against Qualcomm’s smartphone chip business, but ultimately caved because they realized they couldn’t do a 5G iPhone without them.

That positions the company for significant revenue growth, margin expansion, and profit growth over the next few years as 5G smartphone technology rolls out globally.

All of these new 5G smartphones and devices are going to need new 5G chips to power them. Qualcomm makes those chips. Demand for Qualcomm products will consequently soar over the next few years, which will push both revenues higher (they will sell more chips) and margins higher (they will sell these chips at more favorable price points).

Big profit growth will follow.

Against this backdrop where Qualcomm’s revenues, margins, and profits are all moving higher, it’s tough to see Qualcomm stock not going higher. That’s especially true since it trades at a still-reasonable 21-times forward earnings multiple.

Sure, Qualcomm could falter if the 5G boom doesn’t live up to the hype. But it will. 5G is going to fundamentally change the internet communications standard for billions of internet-connected products and services around the globe. So, assuming the 5G boom doesn’t disappoint, then the stock will rise in 2020.

But Not by Much

The only problem with Qualcomm is that, because everyone already knows 5G is going to be a huge tailwind for the company, upside from this tailwind has already been fully priced in.

QCOM trades at 21-times forward earnings. Sure, that’s not a huge multiple. But, it’s a big multiple for Qualcomm historically speaking (five-year-average forward multiple of 14) and it’s big for the semiconductor industry (average forward multiple in that group is 18). Clearly, big growth is priced in.

How much upside is left? Not much.

My long term model on Qualcomm, which assumes double-digit revenue growth going forward as well as fairly sizable margin expansion, calls for the company to earn $8 per share in fiscal 2025. At that point in time, 5G hype will have cooled. Qualcomm stock will trade at a more reasonable semiconductor-average forward earnings multiple of 18. Assuming so, that implies a $144 price target for QCOM by 2024. Discounted back by 10% per year, that equates to a 2020 price target of about $100.

That’s about 7.5% above where shares trade today. Plus, you got the 2.5% dividend yield. Net-net, you’re talking about a 10% total return potential at current levels.

That’s good. But not great.

Bottom Line on Qualcomm Stock

Qualcomm is a good investment for 2020. But not a great one. Shares will trend higher amid the 5G boom, but the magnitude of gains will be limited by an extended valuation.

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