AI data center deployment has attracted investors' attention! Qualcomm (QCOM.US) stock price climbed to a two-month high

The Zhitong Finance App learned that as investors become more optimistic about Qualcomm (QCOM.US)'s strategy to enter artificial intelligence (AI) data center infrastructure, the chip maker is getting more attention. Qualcomm closed up 4.25% to $187.80 on Tuesday. The stock price hit a two-month high and continued to rise slightly before the Wednesday market.

Last week, Qualcomm announced that it has reached a multi-generational product cooperation with Amazon (AMZN.US). The two sides will jointly provide customized chips that can be deployed on a large scale for large-scale AI data centers and cooperate on AI inference. In addition, the two companies will also jointly develop optical interconnect solutions that support up to 1.6T rates, as well as next-generation related technologies for the future. Under this long-term cooperation arrangement, Amazon may purchase Qualcomm AI data center chips and related products with a total value of up to 60 billion US dollars.

In this partnership, Qualcomm provided a “share warrant.” The company granted 25 million shares of Qualcomm stock warrants at an exercise price of 161.26 US dollars/share (that is, Amazon has the right to buy at that price), corresponding to a value of 4 billion US dollars, which expires on September 3, 2036.

This partnership is certainly a major victory for Qualcomm. The reason this partnership is important is because Qualcomm has long been viewed primarily as a smartphone chip company. Its business is highly dependent on the smartphone market, which is growing slowly and demand is more cyclical compared to AI data centers. Furthermore, in recent years, Qualcomm's core smartphone business has also faced uneven demand due to various reasons. Investors have also always viewed Qualcomm's business exposure to Apple as a drag, as Apple has been working hard to develop its own modems for a long time.

At the same time, compared to Nvidia, Broadcom, and other semiconductor stocks, Gao Wei's participation in the AI infrastructure boom of hyperscale cloud service providers driving the rise of these stocks is relatively limited. As a result, in this round of AI-driven markets, Qualcomm's stock price performance has always lagged behind most stocks in the semiconductor industry.

The agreement with Amazon changed this narrative, because it not only brought Qualcomm a heavyweight hyperscale cloud service provider partner, but also provided it with a clear path to get rid of its dependence on the smartphone business and achieve more clear business diversification. Today, the company is targeting AI inference workloads, and its focus on energy-efficient processing capabilities may help it gain a foothold in the data center sector, which has revived investors' attention to the stock.

Qualcomm's partnership with Amazon comes at a critical time. Qualcomm's third-quarter revenue fell 4% to US$9.95 billion, and net profit fell to US$2 billion from US$2.67 billion in the same period last year. The reasons included a 20% drop in mobile phone sales, rising investment costs, and supply chain pressures that dragged down performance. The company also released a fourth-quarter profit outlook that fell short of market expectations.

According to Koyfin's data, 23 of the 37 analysts currently recommend giving Qualcomm shares a “hold” rating, 11 recommend a “buy” or higher rating, and 3 give a “sell” rating or lower. The average price target given by analysts is $194.13, which means that compared to the stock's closing price on the previous trading day, there is a potential upside of 3.4%.

Currently, Qualcomm's performance is still concentrated in traditional fields such as smartphones, and the company is eager to transition to booming fields such as data centers. Qualcomm has successively acquired Nuvia and Alphawave, thus creating the company's four segments of customized ASICs, connectivity, AI accelerators, and server CPUs in the data center field.

Specifically, in the data center sector, connectivity products are the fastest contributor to revenue. The AlphaWave acquired by Qualcomm itself is capable of producing related products such as SerDes IP and 800G optical DSP, and subsequent 1.6T products are also expected to be launched between 2026-2027. Qualcomm's custom ASIC business was also acquired based on the acquisition of AlphaWave Semi. It is expected to launch customized ASIC products in the first quarter of fiscal year 2027, which is one of the highlights of this agreement with Amazon.

Earlier, Qualcomm announced its entry into the data center field, and the company's stock price once rose above $250. After that, even though the company's management gave data center revenue guidance for the 2027-2029 fiscal year, the stock price still fell back to around $150-160. After all, Qualcomm's data center business has no obvious revenue contribution, and the market “has doubts” about its data center business. Qualcomm's announcement of a partnership with Amazon (including procurement promises) will undoubtedly increase the “certainty” of the growth of its data center business.