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Qualcomm has struck a long-term partnership with Amazon to develop custom chips for large-scale AI data centres, marking a major step in its push beyond smartphones and into the rapidly growing AI infrastructure market. The agreement could involve up to $60 billion in purchases of Qualcomm AI data-centre chips and related products. (Sources: Reuters, Investing.com, Bloomberg) Qualcomm shares surged after the announcement, with the stock rising sharply during Tuesday's trading session before paring some gains. Reuters reported that shares gained more than 3%, while other market reports showed the stock rising as much as around 8% earlier in the session. As part of the agreement, Amazon received a warrant to purchase up to 25 million Qualcomm shares at $161.26 per share. The warrant can vest based on commercial arrangements, purchase commitments and actual purchases under the partnership. The warrant is linked to the potential scale of the partnership, which could generate as much as $60 billion in revenue-related purchases for Qualcomm. The warrant has a 10-year term and expires in September 2036, according to reports on the agreement. The custom chips will be designed primarily for AI inference, the stage where trained AI models process new information and generate predictions or responses. Inference is becoming an increasingly important area as cloud providers look for efficient and scalable alternatives for AI workloads. The Amazon partnership strengthens Qualcomm's ambitions in the data-centre chip market, where Nvidia currently has a dominant position. Qualcomm has been courting major cloud companies with custom AI silicon as hyperscalers seek greater control over their AI infrastructure and alternatives to off-the-shelf processors. Amazon has been developing its own custom silicon through AWS, making the Qualcomm partnership strategically important. Reuters reported that Amazon's custom-chip business had reached an annualised revenue run-rate of more than $25 billion at the end of the June quarter. The agreement goes beyond computing chips. Qualcomm and Amazon will also work on advanced optical-connectivity technology for AI data centres, including solutions capable of supporting speeds of up to 1.6 terabits per second and future generations. Qualcomm has set an ambitious target of reaching $5 billion in data-centre revenue in fiscal 2027 and $15 billion by fiscal 2029. The Amazon agreement provides an important customer relationship as the company tries to build a significant new business beyond mobile chips. Amazon joins other major technology companies that have partnered with Qualcomm on data-centre opportunities, including Microsoft and Meta. Qualcomm is also pursuing other large cloud customers as it attempts to establish itself as a meaningful player in AI infrastructure. The deal comes at an important time for Qualcomm as it prepares for the eventual loss of Apple's modem business and faces challenges including weaker handset demand and higher component costs. Expanding into AI data centres could give Qualcomm a new source of long-term growth and reduce its dependence on smartphones. The Amazon agreement gives Qualcomm a major hyperscaler customer, a potential multibillion-dollar revenue opportunity and a pathway into both AI computing and data-centre connectivity. For investors, the deal is an important validation of Qualcomm's strategy to become a broader AI infrastructure company rather than remaining primarily a smartphone-chip supplier.
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