Qualcomm and Amazon have announced a multi-generational collaboration to develop customized silicon for AI inference workloads inside AWS data centers. Qualcomm's CFO and COO, Akash Palkhiwala, highlighted the Amazon arrangement as a key catalyst for the company's financial trajectory, pointing to a significant data center revenue ramp expected during fiscal years 2027 and 2028.

The deal lands as hyperscalers increasingly look beyond Nvidia's dominant GPUs toward custom accelerators tailored to specific workloads, a market where Broadcom and Marvell have built sizable businesses designing chips for the likes of Google and Amazon. For Qualcomm, long known primarily as a supplier of smartphone processors and modems, the agreement represents one of its most concrete steps yet into that competitive arena.

The Deal Structure

As part of the agreement, Qualcomm granted Amazon a warrant for up to 25 million shares priced at $161.26 each, a package potentially worth roughly $4 billion. The warrants vest in tranches tied to commercial arrangements linked to up to $60 billion in purchases, with an initial 3.75 million shares vesting at issuance. Warrant structures of this kind align incentives by tying equity value to actual purchase volumes, effectively lowering the customer's cost only if the commercial relationship deepens.

The collaboration extends beyond processors into high-speed optical connectivity solutions capable of reaching 1.6 terabits per second, an area growing in importance as AI clusters push network bandwidth requirements higher.

Revenue from these custom silicon engagements is expected to begin flowing in the December quarter, with wafer production already underway for initial hyperscaler projects.

The Bigger Strategy: Life After Smartphones

Revenue from Apple-related products has been declining as Apple develops its own modem technology in-house, a shift that has pushed Qualcomm to accelerate its diversification. Amazon now joins Meta and Microsoft as key clients in Qualcomm's push to become a serious player in data center silicon.

Qualcomm is targeting $5 billion in data center revenue during fiscal 2027, scaling to $15 billion by fiscal 2029. The company's broader goal is to reach $40 billion in non-handset revenue by fiscal 2029. Whether those targets are met will depend on execution against established custom-silicon rivals and on hyperscalers' continued appetite for alternatives to merchant GPUs — dynamics worth watching as Qualcomm reports progress on its data center pipeline in upcoming quarters.