Qualcomm's Amazon Deal Gives Stock "Something Special" to Point At

Qualcomm's (NASDAQ:QCOM) recent collaboration with Amazon (NASDAQ:AMZN) has sent shockwaves through the market, with shares of the chipmaker surging 3.17% on Tuesday. The deal, which involves Amazon receiving warrants to acquire roughly $4 billion of Qualcomm stock, has been hailed as a major win for the company. In a recent CNBC segment, Jim Cramer praised the news, stating that Qualcomm "has got something special."

Qualcomm's Data Center Pivot

Qualcomm's collaboration with Amazon is a significant step towards the company's pivot towards the data center market. The company has been working to diversify its revenue streams beyond its traditional handset business, and the Amazon deal is a major milestone in this effort. Qualcomm's data center revenue is expected to reach $5 billion in fiscal 2027 and $15 billion in fiscal 2029, part of a broader plan for total non-handset revenues to reach $40 billion by fiscal 2029.

Competitive Churn in the Custom Silicon Market

The custom silicon market is highly competitive, with several players vying for a share of the growing data center market. Marvell Technology (NASDAQ:MRVL) is a major player in this space, with its Q2 FY27 data center revenue reaching $2.17 billion, up 46% year-over-year. Marvell has also disclosed an expanded warrant agreement with Google, which is expected to generate significant revenue for the company. Qualcomm's deal with Amazon is seen as a major coup in this competitive market, and could help the company to carve out a durable third seat at the table.

What to Watch Next

While the Amazon deal is a significant win for Qualcomm, there are still several key milestones that the company needs to achieve in order to realize the full potential of this partnership. The first checkpoint is the December quarter, when Qualcomm has said custom silicon revenue begins. A clean ramp with visible orders will be crucial for the company to demonstrate its ability to execute on this new business. The second checkpoint is the silicon demonstration of high-bandwidth compute Gen 1, which Qualcomm is expected to demonstrate in coming quarters. This will be a key test of the company's ability to deliver on its promises and attract additional hyperscaler engagements.

Implications for Qualcomm Investors

The Amazon deal has significant implications for Qualcomm investors, who have been waiting for the company to deliver on its data center pivot. With the deal, Qualcomm now has a named hyperscaler with skin in the game through a $4 billion warrant, a multi-generation commitment, and a credible path from roughly zero data center revenue to $15 billion by fiscal 2029. At 34 times earnings with a 2.05% dividend yield, investors are not paying a hypergrowth multiple for a hypergrowth outcome that is starting to materialize. Marvell's year has already shown what the market will pay when hyperscaler custom silicon flows through the P&L, and Qualcomm is earlier in that arc, which is both the risk and the opportunity.

Conclusion

Qualcomm's collaboration with Amazon is a significant step towards the company's pivot towards the data center market. The deal has been hailed as a major win for the company, and has sent shockwaves through the market. While there are still several key milestones that the company needs to achieve in order to realize the full potential of this partnership, the Amazon deal has significant implications for Qualcomm investors. With a named hyperscaler with skin in the game, a multi-generation commitment, and a credible path from roughly zero data center revenue to $15 billion by fiscal 2029, Qualcomm is well-positioned to deliver on its data center pivot and drive long-term growth.