Qualcomm Q3 Profit Slides Amid AI Data Center Push

Qualcomm Inc. reported a 25% decline in third-quarter profit to $2 billion from $2.67 billion a year earlier, driven by a 20% drop in handset sales and rising input costs. Revenue fell 4% to $9.95 billion, reflecting persistent pressure on the company’s core mobile business despite broader sector trends.

Despite the weak earnings, shares climbed 4.3% to a two-month high as investors focused on a new multigenerational collaboration with Amazon. The deal, which could see AWS purchase up to $60 billion in AI data-center chips, marks a significant shift for Qualcomm beyond its traditional smartphone-focused model.

Amazon Deal Diversifies Revenue

The partnership with Amazon provides Qualcomm with a marquee hyperscaler customer, reducing reliance on the cyclical smartphone market. The agreement includes the development of customized AI silicon for inference workloads, leveraging Qualcomm’s emphasis on power-efficient processing. Additionally, the company is developing high-speed optical connectivity with Amazon, extending its product range beyond compute chips.

This shift addresses long-standing concerns about Qualcomm’s limited exposure to the AI infrastructure boom that has benefited peers like Nvidia and Broadcom. By entering the data-center space, Qualcomm aims to tap into a growth avenue with higher demand stability than the handset segment, which has suffered from uneven demand and supply-chain pressures in recent quarters.

Handset Demand Remains Weak

The core mobile business continues to face headwinds, with a 20% decline in handset sales contributing to the profit drop. Higher input costs and supply-chain issues further eroded margins during the quarter. This performance contrasts with the AI-driven rally seen in other semiconductor stocks, where Qualcomm has historically lagged due to its heavy dependence on smartphone shipments.

Investors have also viewed Qualcomm’s exposure to Apple as a potential risk, given Apple’s ongoing efforts to develop its own modem technology. The combination of weak handset demand and competitive threats from in-house chip development has kept a lid on valuation multiples, even as the company seeks to expand into automotive and edge AI markets.

Analysts Cite Data Center Leverage

StoneX maintained its Buy rating and $270 price target for Qualcomm, citing improving leverage in the data-center business. The research firm acknowledged that demand across the broader portfolio remains uneven but highlighted the potential for the Amazon deal to drive future growth. This positive outlook from the bank contrasts with the weaker-than-expected fourth-quarter profit outlook issued by Qualcomm.

According to GN auto stocks/technology: chip stocks, market sentiment remains mixed. While retail traders on Stocktwits shifted to a bearish stance, some note the changing narrative from a pure smartphone semiconductor company to one with significant data-center exposure. The average price target from analysts stands at $194.13, implying modest upside, with 23 of 37 analysts recommending Hold, 11 Buy, and three Sell.