Qualcomm is gaining increased attention as investors grow more optimistic about the chipmaker's strategic push into artificial intelligence data center infrastructure. The stock closed up 4.25% at $187.80 on Tuesday, reaching a two-month high, with modest additional gains in pre-market trading on Wednesday.
Last week, Qualcomm announced a multi-generational partnership with Amazon.com to co-develop scalable custom chips for large-scale AI data centers, with a focus on AI inference workloads. The two companies will also jointly build optical interconnect solutions supporting speeds up to 1.6T, along with next-generation technologies for future deployments. Under this long-term arrangement, Amazon could purchase up to $60 billion worth of Qualcomm AI data center chips and related products. As part of the deal, Qualcomm issued warrants granting Amazon the right to purchase 25 million Qualcomm shares at an exercise price of $161.26 per share, valued at $4 billion, expiring on September 3, 2036.
This collaboration represents a significant win for Qualcomm, which has long been viewed primarily as a smartphone chip company. Its business has been heavily reliant on the smartphone market, a sector that grows more slowly and exhibits stronger cyclical demand compared to AI data centers. Additionally, the company's core smartphone operations have faced uneven demand in recent years due to a variety of factors. Investors have also viewed Qualcomm's exposure to Apple as a drag, given Apple's persistent efforts to develop its own modems.
Meanwhile, compared to Nvidia, Broadcom, and other semiconductor stocks, Qualcomm has had relatively limited participation in the hyperscaler AI infrastructure boom that has driven those shares higher. As a result, during the current AI-driven rally, Qualcomm's stock has lagged behind much of the semiconductor sector. The agreement with Amazon changes this narrative, as it not only brings a heavyweight hyperscaler partner but also provides a clearer path to diversification away from smartphone dependence. With a focus on AI inference workloads, where energy-efficient processing is critical, Qualcomm may establish a foothold in the data center market, reigniting investor interest in the stock.
The partnership with Amazon comes at a crucial juncture for Qualcomm. In the third quarter, revenue declined 4% to $9.95 billion, while net income fell to $2 billion from $2.67 billion in the year-ago period, pressured by a 20% drop in handset sales, rising input costs, and supply chain constraints. The company also issued a fourth-quarter profit outlook below market expectations. According to Koyfin data, 23 of 37 analysts currently rate Qualcomm a "hold," 11 recommend "buy" or higher, and 3 suggest "sell" or lower. The average analyst price target stands at $194.13, implying roughly 3.4% upside from the previous close.
Qualcomm's earnings remain concentrated in traditional segments like smartphones, and the company is eager to pivot toward high-growth areas such as data centers. Through acquisitions of Nuvia and Alphawave, Qualcomm has built out four data center-focused divisions: custom ASICs, connectivity, AI accelerators, and server CPUs. Connectivity products are expected to generate revenue fastest in the data center space. Alphawave brings proven SerDes IP, 800G optical DSP products, with 1.6T solutions targeted for 2026-2027. The custom ASIC business, also derived from the Alphawave deal, is slated to begin shipping in the first quarter of fiscal 2027 and is a key component of the Amazon agreement.
When Qualcomm initially announced its data center entry, shares surged above $250. Even after management provided data center revenue guidance for fiscal 2027-2029, the stock retreated to the $150-160 range, as the business had yet to contribute meaningful revenue. The Amazon partnership including purchase commitments adds greater certainty to Qualcomm's data center growth trajectory.