TLDR
- Amazon announced it could buy up to $60 billion of Qualcomm’s AI data-center chips under a long-term partnership with AWS.
- Qualcomm also granted Amazon warrants worth about $4 billion to buy QCOM stock at $161.26 per share.
- QCOM jumped as much as 6.9% on the deal announcement and is up around 9% so far this month.
- RBC Capital raised its price target to $180 and Piper Sandler upgraded the stock following the news.
- Qualcomm is targeting $15 billion in data-center chip revenue by 2029 as it pushes beyond smartphones.
Qualcomm and Amazon Web Services announced a major multi-generation chip partnership on September 8, sending QCOM stock surging. Under the deal, AWS can purchase up to $60 billion of Qualcomm’s AI data-center chips and related products over time.
Amazon also received stock warrants allowing it to buy around $4 billion worth of QCOM stock at $161.26 per share. The warrants vest as product purchases are made, tying Amazon’s financial stake to the volume of chips it buys.
QCOM jumped as much as 6.9% on the day of the announcement, hitting an intraday high of $180.41. From a month-start price of $165.71 on September 1, the stock climbed to $180.15 by September 14, a gain of about 8.71%.
The deal covers custom chips designed for AI inference, which is the process of running trained AI models. It also includes high-speed optical connectivity technology, with solutions extending up to 1.6 terabits per second to handle the growing bandwidth demands inside AI data centers.
That optical component comes from Qualcomm’s $2.4 billion acquisition of AlphaWave last year. Tony Pialis, AlphaWave’s former CEO, now leads Qualcomm’s data-center chip division.
Wall Street Responds
RBC Capital raised its price target on QCOM to $180 from $160 on September 9, maintaining a Sector Perform rating. Two days later, Piper Sandler upgraded the stock as QCOM added another 3.23% on September 11.
The average Street price target now sits at around $194, according to available analyst data.
Some selling followed the initial pop on dilution concerns tied to the warrants, but QCOM has held on to most of its gains from the announcement.
Bob O’Donnell, chief analyst at TECHnalysis Research, said the deal was “exactly the kind of development that Qualcomm needed to reassure the market that the lofty data-center ambitions they set for themselves could indeed be met.”
Qualcomm’s Bigger Picture
Amazon joins Microsoft and Meta as cloud customers backing Qualcomm’s push into AI infrastructure. Qualcomm has been actively courting cloud providers with custom chips as an alternative to Nvidia’s dominant processors.
Management has set a target of $15 billion in data-center chip revenue by 2029. The company is also ramping the Snapdragon X2 Elite platform and implementing broad price increases across its chip portfolio to support margins.
The AWS deal also includes plans for Qualcomm to expand its use of Amazon’s cloud services for chip design work, with the aim of shortening development cycles.
The deal comes as Qualcomm faces the eventual loss of its Apple modem business, rising component costs, and weaker handset demand in parts of the market. The partnership gives Qualcomm a meaningful revenue path outside of smartphones.
Amazon’s custom chip business generated an annualized revenue run-rate of over $25 billion at the end of the June quarter, making it a key growth driver for AWS.
The Piper Sandler upgrade came on September 11, with QCOM up 3.23% that day, continuing the momentum from the initial deal announcement.
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