Forget Smartphones: Qualcomm Just Landed a Massive AI Deal With Amazon
Key Points
Qualcomm is working to expand its non-handset business and capture some of the growing data center market.
Its deal with Amazon comes after signing Meta Platforms as its first data center customer.
Qualcomm believes there is a $1 trillion total market opportunity in its data center segment.
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Qualcomm (NASDAQ:QCOM) isn't one of the first names that come to mind when considering data center infrastructure, but that may change soon. The chip company announced a deal with Amazon (NASDAQ:AMZN) to buy up to $60 billion of its AI data center chips.
As part of the deal, Qualcomm will grant Amazon warrants worth about $4 billion that will vest with product purchases. Amazon will be able to purchase Qualcomm shares at $161.26 per share.
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Qualcomm and Amazon will also work together to improve high-performance optical connectivity to support fast-growing bandwidth demands in AI infrastructure. And Qualcomm will increase its use of Amazon Web Services and Amazon Bedrock infrastructure to reduce chip design cycles.
"As AI demand accelerates, data center infrastructure will require advances in both computing and connectivity to deliver greater performance with more efficiency," Qualcomm CEO Cristiano Amon said. "Qualcomm is pleased to work with AWS on customized silicon and connectivity solutions, bringing decades of leadership in advanced processing and power-efficient compute, to deliver breakthrough performance and enable the next generation of AI infrastructure."
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Qualcomm's partnership with Amazon is expected to continue for multiple generations of chips for large-scale AI data centers. It signals Qualcomm's growing effort to broaden its portfolio beyond smartphones -- particularly important, as Apple has announced plans to phase out its reliance on Qualcomm cellular modems and use in-house C-series silicon.
About Qualcomm stock
Qualcomm, which is based in San Diego, has long been best known for designing high-performance, low-power chips for mobile devices, personal computers, automobiles, robotics, and wearable devices. Shares have been on a roller-coaster this year and have fallen throughout the summer.
Revenues for the fiscal third quarter (ending June 28) fell 4% to $9.94 billion, net income dropped 25% to $2 billion, and diluted earnings per share slid 23% to $1.87. Handset revenue plummeted 20% to $5.08 billion.
Meanwhile, Qualcomm said it expects its Apple revenue to fall 50% from the September to December quarter, although that will be offset somewhat by sequential growth in Android phones.
Qualcomm enters the data center market
It's against this backdrop that Qualcomm is pinning its hopes on securing a foothold in the fast-growing AI data center market.
Qualcomm previously identified Meta Platforms as its first data center customer, announcing in June that it reached a multi-generation supply agreement to power Meta's servers with Dragonfly C1000 CPUs. It also acquired AI software start-up Modular in an all-stock deal valued at nearly $4 billion. Modular makes software that supports CPUs, GPUs, and custom chip architectures, enabling AI models to run across them without requiring developers to rewrite code for each processor.
"This is the ideal and logical time for Qualcomm to enter the market, as agentic workloads are reshaping the economics of AI," Amon said. "Efficient token generation and total cost of ownership are fundamental to scaling AI. And as a result, inference is becoming disaggregated in the data center and will be increasingly distributed. This means hybrid inference will evolve across the entire compute continuum from data center to on-premise network edge and edge devices. Given Qualcomm's assets, it's a natural evolution of our growth story."
Qualcomm is projecting that its non-handset business -- including automotive, technology for the Internet of Things, and data center -- will rise to $40 billion by the 2029 fiscal year, or roughly two-thirds of Qualcomm's revenue for its semiconductor business. That is a dramatic change from its 2025 fiscal year, when handset revenue made up about 75% of the segment's revenue.
Qualcomm believes there is a $1 trillion total market opportunity in its data center segment, including connectivity, custom silicon, AI accelerators, and server-class CPUs. It aims to generate more than $15 billion in that business by 2029, with a long-term goal of capturing 5% of the total market.
The Amazon deal is a major step toward Qualcomm achieving its goal. Qualcomm stock rose 3% on Tuesday's announcement.
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Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, and Qualcomm. The Motley Fool has a disclosure policy.
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