Qualcomm has spent years trying to convince investors it can become more than a smartphone chip company.
Amazon may have just given it the biggest proof point yet.
Amazon (AMZN) can purchase up to $60 billion worth of Qualcomm’s (QCOM) AI data center chips, systems, technology, and manufacturing services in a long-term partnership focused on AI inference, the chipmaker said Sept. 8. Amazon also received warrants to buy up to 25 million shares of Qualcomm at $161.26 each, which at that exercise price could be worth about $4 billion.
The shares jumped more than 3% on the news.
The obvious story is Qualcomm snagged another big AI customer.
The more important one is that Amazon might help Qualcomm build the business it needs before one of its key smartphone income sources dries up.
Qualcomm told investors it sees its data center business reaching $15 billion in annual revenue by 2029. Suddenly, a potential $60 billion commitment from Amazon makes that target seem much less theoretical.
Amazon gives Qualcomm the validation it needed
The deal extends across several generations of custom silicon for Amazon Web Services, with the companies working together on chips designed for AI inference, the process of running trained AI models in production.
Qualcomm will also offer optical connectivity technology capable of delivering speeds up to 1.6 terabits per second to address the massive bandwidth requirements in today’s AI data centers.
That’s important because Qualcomm isn’t trying to out-Nvidia (NVDA) Nvidia by mimicking its strategy in its entirety.
Instead, the company is building a bigger AI infrastructure portfolio that includes custom compute, networking, and optical connectivity.
Last year, it acquired AlphaWave for $2.4 billion, bolstering its data-center technology and bringing AlphaWave CEO Tony Pialis into Qualcomm to oversee its data-center chip business.
Microsoft (MSFT) and Meta Platforms (META) customers already support Qualcomm’s data-center push. Amazon joins another hyperscaler with huge AI infrastructure requirements.
Qualcomm’s $60 billion deal comes with an unusual sweetener
The alliance also highlights how funding and strategic investment have become tightly entwined in the AI revolution.
Qualcomm also gave Amazon a warrant to acquire as many as 25 million shares at $161.26 each.
The shares don’t vest right away.
The warrants vest in phases when Amazon engages in commercial relationships, makes binding orders, and actually acquires Qualcomm equipment, according to Qualcomm’s Securities and Exchange Commission filing. The complete structure is related to as much as $60 billion in total payments. Some 3.75 million shares vested immediately upon first pledges.
The warrant expires in September 2036.
That framework provides Amazon an incentive to extend its connection with Qualcomm while providing Qualcomm something arguably more important than a simple supply agreement: a motivation for one of the world’s major cloud businesses to assist its AI infrastructure business in flourishing.
A similar framework came together only weeks ago when Marvell Technology agreed to an AI chip deal with Alphabet that provided Google the option to purchase a share valued at up to $12.2 billion.
Increasingly they are potential shareholders in their suppliers, who are AI customers.
Apple makes Qualcomm’s AI pivot more urgent
Qualcomm’s timing is no coincidence.
Apple (AAPL) still makes most of its income from iPhones but has been slowly shifting toward its own modem technology.
Reuters stated that pressure has grown on Qualcomm to diversify due to the inevitable loss of Apple modem income, increasing component prices, and less demand for smartphones.
That makes the Amazon deal more than just another AI announcement.
It provides Qualcomm a possible bridge from a legacy company under structural strain into one of the fastest-growing sectors of semiconductor investment.
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Amazon itself has become increasingly important in custom chips. Its custom silicon business had surpassed a $25 billion annualized revenue run rate by the end of the June quarter.
So it makes AWS a critical client.
Amazon is not only purchasing chips because they are in a limited supply. It has its own significant custom silicon business, and as such, has strong incentives to examine performance, pricing, and architecture.
Winning that business is a credibility test Qualcomm appears to have passed.
Qualcomm’s real AI test starts after the headline
The $60 billion figure is enormous, but investors should be careful about treating it as guaranteed revenue.
The SEC filing stresses that the warrants vest when certain purchase milestones are met, up to the maximum $60 billion payment amount. That implies the headline figure is a potential scale of connection, not an imminent order book.
Related: The AI secret behind Qualcomm’s price hike
Qualcomm still has to execute.
It has to show its processors can compete in inference workloads, interact with hyperscaler infrastructure, and be able to scale with clients that have rapidly changing technological requirements.
Nvidia remains the dominant force in AI computing, while Amazon, Google, and Microsoft are simultaneously developing more of their silicon.
That makes Qualcomm’s opportunity more difficult than most: its largest clients are also its rivals.
The Amazon deal calls Qualcomm’s AI ambitions into question. The company’s $15 billion revenue target from data centers for 2029 was previously considered ambitious. A $60 billion Amazon customer relationship complicates that. Qualcomm told investors it could build a big business beyond smartphones for years. Amazon just gave investors a reason to start taking that claim much more seriously.
