Qualcomm (QCOM) shares experienced a dramatic surge on Thursday, jumping over 18% as investors focused on the company's strategic expansion into the data center chip market and signs of a potential recovery in the smartphone sector. The rally followed Qualcomm's fiscal second-quarter earnings report, which beat analyst expectations and offered a concrete timeline for its long-anticipated data center ambitions.
Earnings Beat and Data Center Catalyst
The company reported adjusted earnings per share of $2.65 on revenue of $10.6 billion for its fiscal Q2, surpassing analyst estimates of $2.56 EPS on $10.59 billion in revenue. While the initial market reaction was muted, CEO Cristiano Amon provided the key catalyst during the earnings call. Amon confirmed that Qualcomm expects to begin shipping a custom data center chip to a major hyperscaler cloud provider in the December quarter, marking the first concrete timeline for the company's entry into this high-growth market. "It is a large hyperscaler and we're really thinking about a multi-generation engagement," Amon stated, without disclosing the client's identity. The company is developing a portfolio including central processing units (CPUs), inference accelerators, and custom ASICs to compete in the AI-driven data center space.
Automotive Milestone and Smartphone Outlook
Qualcomm's automotive segment delivered a standout performance, with revenue hitting a record $1.3 billion—a 38% increase year-over-year. The segment has surpassed a $5 billion annualized run rate, with the company projecting it will exceed $6 billion by the end of fiscal 2026. On the smartphone front, Amon addressed investor concerns by stating that Chinese handset revenue is expected 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 that have dampened global consumer electronics demand.
Cautious Forecast and Analyst Skepticism
Despite the positive sentiment, Qualcomm's guidance for the current quarter remained relatively cautious. The company projected adjusted EPS of $2.10 to $2.30 on revenue between $9.2 billion and $10 billion, with the midpoint of the revenue range falling below the $10.26 billion analysts had expected. While much of the market embraced the diversification narrative, some analysts urged caution. Seaport Research's Jay Goldberg reiterated a Sell rating, warning that "excitement is misguided as the company still faces immense challenges in the data center." JP Morgan analysts also flagged ongoing risks tied to memory shortages and rising component costs, noting that "the smartphone industry is hardly out of the woods." The company also faces a potential revenue impact from Apple's development of its own in-house modem chips once the licensing agreement expires in 2027.
