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Qualcomm Jumps on Analyst Upgrade to Outperform

Bernstein is bullish on the chipmaker after it settled its longstanding legal dispute with Huawei.

Shares of Qualcomm  (QCOM) - Get QUALCOMM Incorporated Report rose nearly 5% Monday to $110.46 after analysts at Bernstein upgraded the chipmaker to outperform from market perform while increasing its price target to $135 from $105 per share. 

Bernstein is bullish on the company after Qualcomm announced last week that it had resolved a long-standing legal dispute with Chinese mobile device maker Huawei.

Huawei agreed to pay Qualcomm $1.8 billion to cover royalty payments owed for 2019 and the first six months of 2020 under a new patent license agreement. 

"After 3+ years of dispute, the Huawei settlement has been looked upon (until last week) as a likely semi-permanent fixture of our new reality, and while there was always hope, we do not believe most investors were anticipating a settlement anytime soon," said analyst Stacy Rasgon. 

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The details of the settlement are confidential, but Qualcomm said that the settlement includes a cross license agreement granting rights to some Huawei patents. 

Qualcomm can't begin immediately shipping to Huawei yet because it needs a shipping license from the U.S. government to do so.

But the agreement allows the company to be prepared to do so, and when they do, it will be a further catalyst for the stock, wrote Rasgon, who is bullish on the 5G sector. 

"In the meantime, even in the middle of a pandemic the 5G content story is mostly supporting things, and hope remains for a cyclical recovery next year. We believe chipset margins are likely to exceed 20% into next year as AAPL ramps," Rasgon noted.