Why Qualcomm Stock Is Soaring on Thursday

Already recovering from a steep sell-off suffered during the first calendar quarter of the year, an encouraging quarterly update sent Qualcomm (NASDAQ: QCOM) shares soaring today. Indeed, with Thursday's 15.1% gain, as of 2:03 p.m. ET Thursday, this stock is now up 45% from its early April low.

While the news and numbers behind the rally are bullish, don't be surprised if profit-taking cools this rally off for a short while, allowing the buyers as well as the sellers to regroup. It remains to be seen whether or not this will be a buying opportunity.

More important than lackluster guidance

Qualcomm turned $10.6 billion worth of revenue into a per-share profit of $2.65 for the three months ending in March. While those numbers are down 2% and 7% year over year (respectively), each also topped analysts' consensus expectations for a top line of $10.56 billion and profits of $2.55 per share. As is usually the case, handsets accounted for the lion's share of the company's results.

The near future doesn't look overly bright, however. Revenue guidance for the fiscal third quarter currently underway is between $9.2 billion and $10.0 billion, falling short of estimates of $10.23 billion. Analysts are also looking for Q3 earnings of $2.30 per share, which is at the top end of Qualcomm's guidance of $2.10 to $2.30.

The stock rallied anyway, mostly in response to Qualcomm CEO Cristiano Amon's comments regarding the company's nascent data center chip business. Without disclosing who the customer is, during the second-quarter earnings conference call Amon confirmed "we are also entering the custom silicon space, beginning our ramp with a leading hyperscaler and we expect initial shipments in December."

Although the company's been developing data center processors for nearly a year now, this will be Qualcomm's first real revenue from this space.

Not yet, but maybe soon

Qualcomm is a solid chip company to be sure. And, several analysts -- many of whom had only been lukewarm fans of the stock -- raised their price targets for QCOM on Thursday following Wednesday evening's release of the company's Q2 results and corresponding conference call.

In most cases though, even the new price targets are still only near or below this ticker's current price of $178. This could weigh on shares, particularly after so much profit-taking potential has been created in such a short period of time. Interested investors might want to wait on the same thing most analysts are. That's more evidence that Qualcomm can actually become a serious competitor in the data center market.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Qualcomm. The Motley Fool has a disclosure policy.