Qualcomm Bets Big on AI Data Centers for Growth

Qualcomm's CEO, Cristiano Amon, has signaled a significant shift, anticipating fiscal year 2027 to mark the beginning of substantial non-handset revenue growth. This expansion is primarily fueled by the company's burgeoning Data Center business.

The company is actively developing chips optimized for artificial intelligence (AI) workloads, addressing the increasing computational demands on data centers. These new AI chips, such as the AI250, are reportedly demonstrating superior power efficiency.

Early projections indicate strong performance for Qualcomm's data center segment. The company forecasts its data center revenue to surpass $650 million in the first quarter of fiscal 2027 and reach an annualized run rate of $7 billion by the end of fiscal 2027.

Amazon stands out as a crucial partner, holding an option to purchase up to $60 billion worth of Qualcomm's data center chips over a decade. This agreement highlights the potential scale of this new market for Qualcomm.

Despite a slowdown in handset chip sales, which were down 26% year-over-year last quarter, Qualcomm anticipates growth in its data center, automotive, and Internet of Things sectors to exceed 60% in fiscal 2027. The automotive sector alone achieved a $2 billion quarter, marking an 89% increase.

Qualcomm's stock is trading at a valuation that management believes does not reflect its future potential. With earnings targets exceeding $18 per share by fiscal 2029, the stock currently trades at a significantly lower multiple of those future earnings, suggesting it may be undervalued.