Qualcomm is not guaranteed to become a major data center chip player, but investors are no longer betting on that scenario either. The stock has risen more than 40% since the company disclosed a big data center customer alongside its late-April earnings report, outperforming most chip stocks over the same period. Even after that jump, Qualcomm is up only 5% over the past two years, while the Philadelphia Semiconductor Index has climbed more than 150%.
The shares still trade at a little above 20 times expected earnings for the next four quarters, making Qualcomm one of the cheapest chip stocks. That contrasts sharply with Arm Holdings, which is also entering data center chips and trades at 175 times forward earnings. The valuation gap reflects Wall Street’s lingering concern about Qualcomm’s dependence on Apple and its tendency to see the company mainly as a smartphone chip maker. Qualcomm’s San Diego base still relies heavily on wireless standards and handset-related business, which accounted for 57% of revenue last quarter.
That dependence is becoming a bigger issue. Qualcomm says Apple’s hardware purchases could disappear entirely after the next iPhone models launch this fall, as Apple replaces Qualcomm modems with its own parts. Analysts estimate the Apple business generated more than $5 billion a year, or about 11% of fiscal 2024 revenue. At the same time, smartphone demand remains weak, and IDC expects global smartphone sales to fall 14% this year because AI-driven memory demand is squeezing supply for the broader device industry.
Under CEO Cristiano Amon, who took over in 2021, Qualcomm has spent years widening beyond phones. Its automotive chip business, boosted by the 2022 purchase of Sweden’s Veoneer, produced $1.3 billion in revenue last quarter, up from $240 million five years earlier, and analysts expect about 45% growth in the June quarter. IoT chips brought in $1.7 billion last quarter, up 9% year on year, while Qualcomm’s newer PC processors, based on Nuvia technology acquired in 2021, are already in market.
The latest move is AI chips for data centers, a late entry into a market dominated by Nvidia. Qualcomm already sells inference chips and has a custom-chip deal with a large technology company, based on technology obtained through its Alphawave acquisition last year. Amon said in April that shipments under that agreement will begin later this year, and the company is expected to provide more details at an investor meeting next week.
