Qualcomm's AI Infrastructure Pivot Is Underappreciated
Key Points
Qualcomm trades at the P/E ratio of a mature company, but its AI wins and guidance numbers reveal a growth story in progress.
It signed lucrative deals with Amazon and Meta Platforms earlier this year, and is well positioned to secure more partnerships for its new AI data center products.
Qualcomm is guiding for meaningful revenue growth from its data center business in its fiscal 2027, which started Sept. 28.
Qualcomm (NASDAQ: QCOM) is positioning itself for a major comeback in 2027, but most investors aren't taking it seriously. The stock is only up by 8% year to date.
The company's pivot into AI infrastructure is a major catalyst that suddenly makes the stock's 23 P/E ratio look like a bargain, and its established connections with other players in the tech sector give it a tremendous starting point.
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Assessing the AI opportunity
It's no secret that AI chip demand has been surging for multiple years and looks poised to expand further in 2027. As Nvidia and other chipmakers continue to sell out their supply, tech giants will look elsewhere to meet some of their needs, and that's where Qualcomm is starting to come into play.
Qualcomm is pushing hard into AI, highlighting during its recent investor day that it's involved in every layer of AI infrastructure, from CPUs to connectivity. The company also touted its high-bandwidth compute technology as a way to break the memory wall and reduce energy per token. If this technology delivers, it can dial back the need for high bandwidth memory.
Energy efficiency per token will only grow more meaningful as agentic AI becomes mainstream. Between agentic CPUs, general-purpose CPUs, and AI head node CPUs, Qualcomm expects a $200 billion CPU total addressable market by fiscal 2029. It also expects a $65 billion total addressable market for connectivity by fiscal 2029 due to rising demand from hyperscalers.
Key partnerships give Qualcomm a head start
The investor day presentation had several positive details about Qualcomm's AI efforts, including the objective of generating multibillion-dollar revenue starting in its fiscal 2027. Qualcomm's fiscal 2026 ended Sept. 27, so we get some updates on that topic when it reports full-year results on Nov. 4.
A 4% year-over-year dip in revenue during its fiscal 2026 third quarter highlights the current challenges. However, Qualcomm's AI pivot didn't come completely out of the blue. The company has been developing chips for tech giants for many years, and those relationships make it easier for Qualcomm to land hyperscaler customers.
Qualcomm already landed a multiyear deal with Amazon to support Amazon Web Services' growing AI infrastructure. It reached a similar deal with Meta Platforms earlier in the year.
The growth from those contracts should show up in its financial results quickly. Qualcomm suggested that its non-handset revenue would jump from 24% growth in fiscal 2026 to more than 60% growth in its fiscal 2027. That part of the business includes Qualcomm's AI data center products.
Qualcomm is trading at a price-to-earnings ratio that would make sense if it were a dead-end stock with a 2% yield, but the company is quietly putting all of the pieces together for a meaningful rally in 2027.
Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.