Qualcomm Targets Data Center Revenue Surge to Counter Smartphone Stagnation

Qualcomm has lagged significantly behind its semiconductor peers over the past three years, posting a 63% share price increase compared to gains exceeding 300% for Nvidia, AMD, and Broadcom. This underperformance stems largely from the company’s historical reliance on the smartphone market, a sector facing structural growth headwinds that have suppressed both top-line and bottom-line expansion. While the broader PHLX Semiconductor Sector index appreciated by 232% during this period, Qualcomm’s equity returns remained muted, reflecting investor skepticism regarding its ability to diversify beyond mobile handsets.

The business landscape is shifting as Qualcomm secures critical partnerships to enter the high-growth AI data center segment. The company has announced agreements with Meta Platforms and Amazon to supply server CPUs, AI accelerators, and optical connectivity components. These deals mark a strategic departure from its legacy mobile focus, positioning Qualcomm to capture demand from agentic AI and inference workloads. Management projects that data center revenue will reach $5 billion in fiscal 2027 and scale to $15 billion by fiscal 2029, a significant new revenue stream intended to offset stagnation in traditional mobile sales.

Hyperscaler Partnerships Drive New Revenue Streams

The agreement with Meta Platforms, finalized in June, involves the deployment of Qualcomm’s Dragonfly data center CPUs to power next-generation AI servers. Meta has committed to using future generations of these server CPUs, indicating a long-term hardware roadmap rather than a one-off trial. Simultaneously, a new partnership with Amazon focuses on co-developing multiple generations of custom AI chips and optical connectivity components. These collaborations validate Qualcomm’s technical capabilities in rack-scale server systems and provide a stable, high-volume revenue base that reduces reliance on consumer discretionary spending.

Consensus estimates currently project a 3% decline in total revenue to $43 billion for fiscal 2026, reflecting the continued drag from the mobile sector. However, the trajectory is expected to reverse sharply in subsequent years as the data center segment scales. The company’s ability to integrate its CPU and accelerator designs into major cloud infrastructure providers is the primary catalyst for this forecast improvement. By embedding its hardware into the core AI stacks of major hyperscalers, Qualcomm is converting its historical mobile IP into a relevant asset for enterprise and cloud computing environments.

Valuation Gap Reflects Potential Growth Acceleration

Qualcomm currently trades at a forward earnings multiple of under 17 times, a significant discount to its peers and the technology sector average. This valuation gap suggests the market has not yet fully priced in the potential earnings acceleration from the new data center business. If the company achieves its target of 25% earnings-per-share growth by fiscal 2028, a re-rating to a 30-times multiple would be consistent with its improved growth profile. Such a valuation adjustment would imply a substantial increase in share price relative to current levels, driven by fundamental performance rather than speculative hype.

Strategic Pivot Defines Long-Term Outlook

The transition from a mobile-centric model to an infrastructure-focused strategy represents a fundamental change in Qualcomm’s cost and revenue structure. The data center segment typically commands higher margins and more predictable, recurring revenue streams compared to the cyclical nature of smartphone sales. As the company ramps up production for its Meta and Amazon partners, the contribution of this segment to overall profitability will likely increase. This structural shift aims to stabilize earnings growth and reduce volatility, making the company’s financial profile more attractive to institutional investors seeking exposure to the AI infrastructure build-out without the premium valuations associated with leading GPU makers.