John Ballard, The Motley Fool
4 min read
“Fiscal 2027 marks the start of our non-handset revenue inflection, including the ramp of our Data Center business,” Qualcomm (NASDAQ:QCOM) CEO Cristiano Amon said in the company’s fiscal 2026 Q4 report on Nov. 4.
You wouldn’t know that from how the stock is trading. Shares of the chipmaker behind the Snapdragon processors that can be found in close to a quarter of all smartphones closed at $173.53 on Nov. 10, 33% below their May 29 high. The stock’s pullback can be blamed in part on the fact that handset chip sales have been falling in 2026, and were down by 26% year over year last quarter.
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But the bigger story is what Qualcomm is building next.
Data center chips: A new revenue opportunity that doesn’t need a booming market
Artificial intelligence (AI) agents are multiplying the volume of computational work that data centers have to do. Tony Pialis, the general manager of Qualcomm’s data center business, said that a single AI agent query generates 50 to 100 times as many inference requests as it did in the past, and today’s power-hungry systems can’t keep up.
Qualcomm’s answer is to offer chips built to run AI more efficiently, and early results are encouraging. Its AI250 chip is exceeding expectations for power efficiency. The company’s data center revenue is forecast to top $650 million in fiscal 2027 Q1, and increase each quarter, exiting fiscal 2027 at a $7 billion annual run rate. Amazon is a key customer, and has a contract giving it the option to purchase up to $60 billion in data center chips from Qualcomm over 10 years.
Image source: Getty Images.
What if overall data center spending slows? Qualcomm is starting almost from scratch in this market — it didn’t even report data center sales on a separate revenue line last year. Its growth in this segment will depend on its ability to win market share, not on higher spending on data centers. Management is targeting more than 5% of a $1 trillion opportunity in five to seven years and says existing design wins already cover strong growth in fiscal 2028.
The stock is priced for the old Qualcomm
The biggest risk to Qualcomm’s business in the near term is its shrinking relationship with Apple, which plans to use mostly its own smartphone modems going forward. But management expects data center, automotive, and Internet of Things revenue to grow by more than 60% in fiscal 2027, more than offsetting the loss of chip sales to Apple. Automotive revenue just hit its first $2 billion quarter, up 89%.
