Shares of Qualcomm surged on Thursday as investors looked past a modest earnings beat and focused instead on the company’s growing ambitions in data center chips and signs of a potential recovery in the smartphone market.
The stock jumped more than 18%, as optimism around diversification efforts helped offset concerns about near-term headwinds in its core handset business.
Data center ambitions lift sentiment
Much of the rally was driven by comments from CEO Cristiano Amon, who highlighted early traction in Qualcomm’s push into the data center market—a space dominated by established players but seen as a major growth opportunity.
Amon told analysts that initial shipments of a custom data center chip are expected to begin in the December quarter with a large hyperscaler customer, though the company did not disclose the client’s identity.
“It is a large hyperscaler and we’re really thinking about a multi-generation engagement, but I think that’s what we can say at this point,” Amon said.
The company is working across multiple chip categories, including central processing units, inference accelerators, and custom ASICs, as it attempts to carve out a position in the fast-growing AI-driven data center segment.
Analysts said this diversification strategy could be key to Qualcomm’s long-term growth.
“Expectations were modest this quarter and [Qualcomm] delivered…what will move the needle for the company will be its data center entry with a portfolio of XPU, CPU, Custom, and Networking chips,” said Daniel Newman, CEO of Futurum.
Smartphone recovery hopes provide support
Investor sentiment was also buoyed by expectations that Qualcomm’s core smartphone business may be nearing a bottom.
Amon said handset revenue from Chinese customers is likely to hit a low point in the current quarter before returning to growth.
He expressed confidence that the broader smartphone market will begin to rebound after the fiscal third quarter, following a prolonged slowdown driven by rising memory costs.
The surge in memory chip prices has weighed heavily on global consumer electronics demand, forcing manufacturers to scale back production and dampening shipments.
Qualcomm, one of the world’s largest suppliers of smartphone chips, has been particularly exposed to this cyclical downturn.
The company has also warned of potential market share losses tied to Apple, a major customer that is developing its own in-house modem chips.
Qualcomm expects this shift to impact its revenue growth once its licensing agreement with Apple expires in 2027.
Mixed outlook keeps some analysts cautious
Despite the upbeat reaction, not all analysts are convinced the rally is justified.
Seaport Research’s Jay Goldberg reiterated a Sell rating on the stock, warning that challenges in both the data center and smartphone markets remain significant.
“We think that excitement is misguided as the company still faces immense challenges in the data center. We remain cautious on the company as it faces memory-driven supply destruction and the risk of further share loss,” Goldberg wrote.
Similarly, analysts at JP Morgan flagged ongoing risks tied to memory shortages and rising component costs, cautioning that the smartphone sector may not yet be out of the woods.
“While Qualcomm will have visibility into stabilizing handset revenues, the smartphone industry is hardly out of the woods with the likelihood of further pressure in the underlying market, with further worsening of memory shortages and memory price increases,” they said.
For the quarter, Qualcomm reported adjusted earnings per share of $2.65 on revenue of $10.6 billion, topping analyst expectations.
However, its forecast for the current quarter remained relatively cautious, with projected earnings of $2.10 to $2.30 per share on revenue between $9.2 billion and $10 billion.
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