Qualcomm’s AWS Deal Takes Aim at Nvidia, But Comes With Fine Print

Qualcomm has formed a strong data center partnership with Amazon Web Services (AWS), a major player in AI infrastructure. The deal, which includes a multi-generational silicon collaboration focused on AI inference, has driven up Qualcomm's stock price. However, the structure of the agreement is conditional, with Amazon receiving warrants for up to $4 billion worth of Qualcomm stock.

These warrants, tied to commercial arrangements and purchase orders, could potentially reach $60 billion in value. The agreement adds momentum to Qualcomm's data center efforts, following the recent unveiling of its Dragonfly C1000 CPU, which has Meta as a named customer for 2028. Qualcomm aims to reach $15 billion in data center sales by fiscal 2029, but the $60 billion figure in the agreement represents a potential ceiling that depends on successful execution.

While the AWS validation is a significant vote of confidence in Qualcomm's custom silicon strategy, the revenue opportunity remains tied to future purchase commitments. The company's broader challenge to Nvidia's dominance in the AI market remains unproven, as the smartphone business faces unresolved erosion concerns. Despite this, growing confidence in Qualcomm's diversification story is evident, with the number of hedge funds holding the stock increasing from 71 to 95.

However, we believe that certain AI stocks offer greater upside potential and carry less downside risk.