Qualcomm strikes AI chip deal with Amazon, offers right to buy about $4 billion in stock

On September 8, Qualcomm announced a long-term partnership with Amazon, wherein the cloud giant could acquire up to $60 billion worth of Qualcomm's AI data-center chips and associated products. This move bolsters Qualcomm's quest to become a key supplier in the AI infrastructure market. The agreement also provides Amazon with warrants amounting to approximately $4 billion, which become exercisable upon product purchases, granting them the right to buy shares at a fixed price of $161.26 each.

Qualcomm's shares surged more than 4% following the announcement. The deal is a testament to Qualcomm's diversification efforts beyond smartphones, which are crucial as the company faces the eventual decline of its Apple modem business, escalating component costs, and dwindling handset demand. In the past year, Qualcomm has been targeting cloud providers with tailor-made AI chips and data-center technologies to counter their shifting focus.

Amazon joins Microsoft and Meta as customers supporting Qualcomm's AI chip initiative, which the tech company anticipates will result in data-center chip revenue of $15 billion by 2029. This partnership is crucial in validating Qualcomm's ambitious data-center ambitions, as noted by Bob O’Donnell, chief analyst at TECHnalysis Research.

The collaboration focuses on chips for AI inference, a rapidly expanding market centered on executing trained AI models, which has become a hotly contested arena among semiconductor companies. Additionally, Qualcomm and Amazon will develop high-speed optical connectivity technologies, such as solutions up to 1.6 terabits per second, to address the escalating bandwidth requirements in AI data centers.

By integrating compute and optical interconnect, Qualcomm aims to showcase the unique semiconductor technologies they can contribute to AI infrastructure.