Qualcomm bets on AI chips to break smartphone reliance, but faces crowded race

Qualcomm is signaling a significant strategic pivot, preparing to outline a major push into the rapidly expanding, yet intensely competitive, market for AI data center chips. The company is expected to reveal new customers for its AI silicon during its investor day, as it strives to carve out a niche against established giants like Nvidia.

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Qualcomm is expected to use its investor day on Wednesday to lay out a push beyond its core smartphone business into the fast-growing, but highly competitive, market for AI data center chips.

This strategic shift is largely a response to mounting pressures within the smartphone market, where Qualcomm is a leading supplier of chips for Android devices. The sector faces challenges from a memory chip shortage fueled by high demand for AI infrastructure, coupled with major customers such as Apple and Samsung increasingly opting for in-house chip development. Consequently, Qualcomm has been actively diversifying into the automotive and data center sectors.

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The shift reflects mounting pressure in the smartphone market, where Qualcomm is one of the world’s largest chip suppliers to Android device makers.

The company is re-entering the AI market, which Bank of America analysts describe as fast-growing but hyper-competitive, populated by large incumbents like Nvidia, Cerebras, and custom chip providers such as Amazon's Graviton and Google's Axion. Qualcomm announced in April its intention to begin shipping processors and other AI chips for data centers by the end of the year. It is developing three types of chips: central processing units, inference accelerators, and custom application-specific integrated circuits (ASICs).

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The company, which has attempted to boost its data-center business multiple times, is re-entering a fast-growing, but hyper-competitive AI market full of large incumbents such as Nvidia, the newly minted Cerebras and other custom chip options including Amazon's Graviton and Google's Axion, Bank of America analysts warned in a client note on Tuesday.

AI inference, the process of running trained AI models, has become a critical battleground. Analysts project Qualcomm's data center endeavors could generate modest annual revenues of roughly $2 billion to $5 billion by fiscal years 2027-2028. Investors will be closely watching for updated long-term financial targets and Qualcomm's growth ambitions for its non-handset businesses. Significant attention is also expected for its recent $4 billion all-stock acquisition of AI software startup Modular, a move seen as a direct challenge to Nvidia's dominant CUDA software ecosystem.

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Qualcomm said in April that it plans to begin shipping processors and other AI chips for data centers by year-end.