Semiconductor Sector ETF Rallies on Qualcomm, Apple Agreement | ETF Trends

Semiconductor sector-specific ETFs rallied Wednesday, following Apple (NasdaqGS: AAPL) decision to settle its differences with Qualcomm (NasdaqGS: QCOM) and agreed to end litigation between the two tech giants worldwide.

Among the best performing non-leveraged ETFs of Wednesday, the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) advanced 1.6%.

Meanwhile, Qualcomm shares surged 11.9% Wednesday after jumping 23.2% in the previous session. QCOM makes up 7.8% of SOXX’s underlying portfolio.

Qualcomm strengthened after signing a deal with Apple for royalties and chipsets to end a two-year legal dispute. Investors rejoiced on the end to litigations as the rising legal fees would have cut into both of the firms’ bottom lines.

Qualcomm also announced that the deal would add $2.00 of incremental earnings per share to its 2020 financial results and at least three brokers upgraded their rating on the company stock, Bloomberg reports.

Bernstein analyst Stacy Rasgon, who originally labeled the Qualcomm’s shares “virtually uninvestible” while litigation was ongoing, stated that “the resolution will likely go a long way toward assuaging investors who have been terrified of the potential for negative legal and regulatory outcomes.”

JPMorgan’s Samik Chatterjee believed the agreement with Apple underscored Qualcomm’s patent portfolio and leadership in 5G chipsets.

Stifel’s Kevin Cassidy argued that there will be no or only a slight discount to Qualcomm’s licensing fee once Apple iPhones ramp into production with Qualcomm modems.

“We think this settlement is a significant win for Qualcomm and results in a similar, if not better outcome than if Qualcomm had won at the FTC,” Morgan Stanley’s James Faucette said.

Cowen’s Matthew Ramsay and Krish Sankar said the agreement “removes a massive overhang on Qualcomm shares,” and even after Tuesday’s 23% rally, QCOM shares remain undervalued, which may leave the chipmaker more room to run in the future.

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