Qualcomm (NASDAQ:QCOM) signed one of the world’s biggest cloud operators as a long-term chip customer last month. Yet the stock still trades at a steep discount to the semiconductor sector, as if the company were just a smartphone supplier watching its biggest phone customer walk away.
If you’ve owned an Android phone, Qualcomm probably made money from it, through the Snapdragon chip inside or the wireless patents behind its connection. The company sells processors and modems to handset makers, collects royalties across the phone industry, and increasingly sells chips into cars, connected devices, and now AI data centers. That expansion comes as investors monitor broader momentum across the 12 Best Performing Semiconductor Stocks to Invest In.
Whether that discount is a warning or an opening depends less on phones than on how fast those newer markets can fill the hole phones are leaving.
The Toll Booth Still Pays
Qualcomm’s oldest edge is its licensing arm, QTL. Phone makers pay to use patents built into cellular standards, and that unit earned a 69% EBT (earnings before taxes) margin in fiscal Q3 2026. That’s down from 71% a year earlier, but still a level most hardware companies never touch.
The chip business, QCT, is where the moat is being rebuilt. Automotive revenue reached $1,588 million in the quarter, up 61%, stretching its run to 23 consecutive quarters of double-digit growth. Those wins come from years-long design cycles with automakers, the kind of sticky relationships shared by other chipmakers chasing smarter cars.
From Phones to Server Racks
The bigger shift arrived last month. Qualcomm announced a multi-generation collaboration with Amazon to build customized silicon for AI inference (running trained AI models) in AWS data centers, plus optical connectivity for Amazon’s networks.
A regulatory filing gave the deal teeth. Qualcomm issued Amazon a warrant for up to 25 million shares at $161.26 each, vesting as Amazon signs agreements, places binding orders, and actually buys, up to a maximum of $60 billion in payments. Initial purchase commitments already vested 3,750,000 of those shares.
That structure ties Amazon’s full stake to real purchases, not a press release. It also shows hyperscalers spreading work across custom AI chip designers rather than leaning on one supplier.
Management expects non-handset revenue growth, including data center, to accelerate from 24% in fiscal 2026 to more than 60% in fiscal 2027. At its Investor Day, it set a $40 billion non-handset revenue target for fiscal 2029, nearly double its earlier goal, positioning the company among high-upside opportunities highlighted in our review of 10 Best AI Stocks to Buy Before They Explode.
Can Earnings Survive the Handoff?
The skeptics’ case is simple: the old business is shrinking before the new one is big enough. Handset revenue fell 20% to $5,086 million in fiscal Q3, amid what the company called a challenging memory and supply environment. QCT’s EBT margin slipped to 26% from 30% as input costs climbed, a squeeze hitting smartphone chip suppliers broadly. Non-GAAP EPS fell 20% to $2.21.
Apple adds a second layer. Qualcomm’s own filings have long warned that Apple is building in-house modems and expects to use them in some or all future devices.
The company is raising prices to pass through costs and expects that to help margins over time. Still, the near-term bridge looks bumpy, and expected EPS growth of (2.74)% in 2027 reflects it.
Cheap Next to Peers, Not Its Past
At 16.74 times forward earnings, as of October 9, Qualcomm trades well below the sector’s 23.35 multiple. That’s $16.74 for each dollar of expected earnings, versus $23.35 for a typical peer. Against its own history, though, the stock isn’t cheap. Its five-year average P/E is 14.35, so the market already pays above Qualcomm’s past norm, even with earnings expected to dip in 2027. That only makes sense if investors are crediting the second act, partially, but nowhere near the full sector premium.
Adjusted figures give the cleaner read, since GAAP results swing with gains and losses in Qualcomm’s strategic-investments unit and with stock-based pay. In fiscal Q3, GAAP EPS was $1.87, against $2.21 on a non-GAAP basis. If non-handset growth hits management’s targets, today’s multiple could look modest in hindsight. If it stalls, little growth remains to defend a premium over that 14.35 average. Hedge funds have warmed to the setup, with 95 funds holding the stock in the most recent quarter, up from 71 in the prior one. Short interest stands at 4.01% of the float, a relatively limited bearish bet.
Patience Is the Price
The evidence suggests Qualcomm’s discount to the sector is mostly about timing, not decline. Licensing and a fast-growing auto unit provide a sturdy base, and the Amazon warrant rewards real orders rather than promises. But earnings are expected to soften before the new engines take over.
That suits patient investors willing to sit through a soft 2027 for a data center ramp priced below the sector multiple. If Amazon’s orders show up as revenue and non-handset growth tracks toward that 60%-plus pace, the gap to peers looks hard to justify. If data center sales lag while handset revenue keeps eroding, the premium to Qualcomm’s own history would likely go first.
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