This AI Chip Stock Just Signed Massive Deals With 3 Hyperscalers, and It Still Looks Like a Great Buy Right Now (Hint: Not Nvidia or Intel)

Ever since OpenAI released ChatGPT in November 2022, the AI industry has been characterized by ever-growing demand for compute. That demand has taken several forms over the years.

First, massive data centers required as many GPUs as they could find, leading to a boom in Nvidia (NASDAQ: NVDA) sales. Then, GPUs required more and more high-bandwidth memory. In the age of agentic AI, many developers see a growing need for CPUs, like those from Intel (NASDAQ: INTC).

One company is making the most of its opportunity, recently signing three massive deals with hyperscalers. Qualcomm (NASDAQ: QCOM) expects to grow its data center chip business from practically nothing last year to $15 billion by 2029. And it's off to a strong start.

Image source: Getty Images.

The AI chip company is taking a share of the data center market

Qualcomm said it's developing a custom silicon solution with a leading hyperscaler back in April and expects to start ramping it later this year. At its investor day last month, management said it now has two hyperscalers under contract for at least $1 billion, as well as a deal to start selling its next-generation CPUs designed for AI agents to Meta Platforms starting in the second half of 2028. Management now expects $5 billion in revenue from its data center business in fiscal 2027, growing to $15 billion by 2029.

The opportunity in data center CPUs is massive relative to Qualcomm's current business. Intel, for example, generated $5.1 billion in sales through its Data Center and AI segment last quarter and $17 billion over the past year. And it's had a multiyear head start in the data center CPU space.

Qualcomm expects the total addressable market to exceed $1 trillion across connectivity chips, custom silicon, AI accelerators, and CPUs, all of which it participates in or actively develops. And $15 billion is just 1.5% of that market, so it's not a high bar.

Qualcomm's trailing-12-month revenue is $44.5 billion, suggesting a substantial growth opportunity for the business. It also sees opportunities to grow its device CPU business as demand for on-device AI increases.

That said, it has to compete with Intel and, more recently, Nvidia on that front. While selling chips directly will yield a lower operating margin than licensing its technology through its legacy wireless chip business, management sees significant leverage as the business scales, which should produce very strong earnings growth over the next few years.

Management sees EPS climbing to more than $18 by 2029. That represents 18% annualized growth from expectations for the current year. Meanwhile, the stock trades for less than 18 times forward earnings expectations, making it an excellent opportunity for investors right now.

Adam Levy has positions in Meta Platforms and Qualcomm. The Motley Fool has positions in and recommends Intel, Meta Platforms, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.