Key Points
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The rise of agentic AI is driving increased demand for central processing units among hyperscale providers.
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The company is strategically positioned to benefit from this trend after securing three significant agreements.
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This emerging revenue stream has the potential to lift earnings per share significantly, yet the current share price does not fully capture that upside.
Since OpenAI launched ChatGPT in November 2022, the AI sector has experienced a sustained surge in compute demand, which has manifested in various ways.
Initially, data centers scrambled to acquire as many graphics processing units as possible, fueling a boom for Nvidia (NASDAQ: NVDA). Subsequently, the need for greater high‑bandwidth memory grew alongside GPU usage. Today, the emergence of agentic AI has highlighted a rising requirement for central processing units, such as those offered by Intel (NASDAQ: INTC).
One firm is capitalizing on this shift, having recently signed three substantial agreements with hyperscale customers. Qualcomm (NASDAQ: QCOM) projects its data‑center chip business to expand from near‑zero revenue last year to $15 billion by 2029, and it is already making strong progress.
Image source: Getty Images.
The AI chip company is taking a share of the data center market
Qualcomm reported that it is developing a custom silicon solution with a leading hyperscale partner, a project initiated in April with production slated to begin later this year. According to comments made at its recent investor day, the company has secured contracts with two hyperscalers each worth no less than $1 billion, and it has agreed to supply its next‑generation AI‑focused CPUs to Meta Platforms beginning in the second half of 2028. Management forecasts data‑center revenue of $5 billion for fiscal 2027, rising to $15 billion by 2029.
The addressable market for data‑center CPUs dwarfs Qualcomm’s present scale. For context, Intel reported $5.1 billion in Data Center and AI sales in the most recent quarter and $17 billion over the last twelve months, benefiting from a multi‑year lead in this arena.
Qualcomm estimates that the combined market for connectivity chips, custom silicon, AI accelerators, and CPUs will surpass $1 trillion, and it participates in or is developing products across all these segments. Capturing $15 billion would represent only about 1.5 % of that total, a modest target.
With trailing‑12‑month revenue of $44.5 billion, Qualcomm has a sizable platform from which to expand its data‑center ambitions. The company also anticipates growth in its client‑side CPU offerings as on‑device AI adoption rises.
Nevertheless, the firm will face competition from Intel and, increasingly, Nvidia in the CPU arena. Although direct chip sales typically carry lower operating margins than licensing its wireless technology, management believes that scaling the data‑center business will deliver substantial leverage, driving robust earnings growth in the coming years.
Management projects earnings per share to exceed $18 by 2029, reflecting an 18 % annualized increase from current‑year estimates. With the stock trading below 18× forward earnings, the share price appears attractive relative to its growth prospects.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
