Qualcomm (QCOM) Shares Skyrocket 15% on Secretive Data Center Deal
Shares of Qualcomm (NASDAQ: QCOM) jumped as much as 20% on Thursday and finished up 15.1% to $179.58 after the semiconductor giant said it
Quick overview
- Qualcomm shares surged 15.1% to $179.58 after announcing a major hyperscaler customer for its first data center processor.
- The company confirmed its entry into the custom silicon industry, with expected shipments starting in December.
- Despite a mixed earnings report, Qualcomm's outlook for its smartphone chip business in China is improving.
- Analysts have cautiously raised their price targets for Qualcomm, reflecting optimism about its new data center program.
Shares of Qualcomm (NASDAQ: QCOM) jumped as much as 20% on Thursday and finished up 15.1% to $179.58 after the semiconductor giant said it has already landed a major hyperscaler customer for its first data center processor, a business segment it has been quietly working on for almost a year.
Qualcomm’s Mystery Customer Changes Outlook
The company said during its second-quarter earnings call Wednesday evening that it was entering the custom silicon industry, confirming the move with CEO Cristiano Amon. “We are also moving into custom silicon, and we are starting our ramp with a leading hyperscaler and we expect first shipments in December,” Amon added, avoiding to name the customer beyond saying it was “large” and indicating a “multi-generation engagement.”
“We feel very good about the progress,” CFO Akash Palkhiwala told analysts, adding that the business now expects beginning shipments for the custom silicon engagement later this calendar year. During the Q&A, management refused to give more details regarding the client’s identity despite repeated probing. The biggest hyperscalers in the world are Amazon Web Services, Microsoft Azure and Google Cloud but Alibaba, Oracle and IBM’s cloud businesses are big players too. Qualcomm is holding its annual investor day on June 24, and is largely expected to give more specifics.
Mixed Earnings Fail to Dampen QCOM Investor Enthusiasm
The data centre reveal was enough to overshadow a disappointing earnings report. Revenue in the second quarter was $10.6 billion and earnings per share were $2.65, down 2% and 7%, respectively, from the year-ago period but ahead of consensus projections of $10.56 billion and $2.55 per share, Qualcomm said. As is the norm, handsets remained the company’s biggest revenue source.
The prospects were less promising ahead. Qualcomm forecast fiscal third-quarter revenue of between $9.2 billion and $10 billion, below the $10.23 billion that analysts had expected. Earnings guidance of $2.10 to $2.30 a share was at or below the consensus of $2.30. The weaker projection reflected partly the continuing difficulty in memory-related demand in the Android smartphone market and a continued headwind from the expected loss of Apple as a modem customer, a drag that is estimated at $4 billion to $5 billion yearly, analysts said. More positively, management said its smartphone chip business in China is nearing a bottom and should begin to expand again after the next quarter.
Analysts Cautiously Raise Targets for Qualcomm (QCOM) Stock
Overall, the analyst views were cautious but constructive. UBS boosted its price target to $170 from $150, but kept its Neutral rating, saying the data centre program would need to generate about $10 billion in revenue to explain Thursday’s market reaction. BofA Securities hiked its goal to $165 but maintained an Underperform rating, and RBC Capital boosted its target to $175 with a Sector Perform rating. “Mizuho and HSBC also raised their targets, but kept their neutral ratings. Summit Insights was the highlight, raising the stock to Buy outright on Qualcomm’s expansion into AI-driven industries.
After Thursday’s advance, QCOM has now bounced dramatically from the broader selloff that started the first calendar quarter and has gained about 45% from its early-April low. The stock is risen less than 6% so far this year.
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