Qualcomm’s Datacenter Pivot Is Real, but The Market Already Knows This

Qualcomm, once a renowned name in smartphone chips, is shifting its focus towards data centers. Despite entering the data center market late, the company sees potential in the AI sector. Analyst David O Connor of Piper Sandler initiated coverage on Qualcomm with a Neutral rating and a price target of $190.00. The analyst believes there is an attractive multi-year AI opportunity for the stock, but argues that many of QCOM's wins are already reflected in its valuation.

Qualcomm aims to generate over $15 billion in data center revenue by fiscal 2029, with $5 billion expected by fiscal 2027. The company's CFO, Akash Palkhiwala, anticipates $1 billion in revenue from custom-chip customers. Piper envisions a 16% compound annual growth rate in EPS, driven by data center wins. While the company's data center story appears solid, the question remains whether Qualcomm can outperform given its late entry into the market.

The company's research summary suggests that handsets could still account for roughly half of EBIT in fiscal 2029, even as data center revenue expands. Qualcomm's design wins are already discounted in the share price, and the firm highlights High Bandwidth Compute (HBC) as a crucial part of its strategy. If hyperscalers adopt the HBC architecture, it could provide additional upside for Qualcomm.

However, more industry traction and acceptance for the HBC technology are needed, or else the risk is that QCOM will move in line with market expectations, failing to generate the bullish outlook Piper anticipates.