Why Qualcomm Stock Is Up Today
Key Points
Qualcomm is teaming up with Amazon to build next-generation AI data centers.
Amazon obtained a warrant to buy up to $4 billion of Qualcomm's stock as part of the agreement.
Shares of Qualcomm (NASDAQ: QCOM) rose as much as 8.7% on Tuesday after the semiconductor designer struck a potentially highly lucrative partnership with Amazon (NASDAQ: AMZN).
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Accelerating the AI boom
Qualcomm will help Amazon develop custom artificial intelligence (AI) chips to power its industry-leading cloud computing business.
Amazon Web Services (AWS) will also deploy Qualcomm's advanced optical connectivity solutions to speed up data transfers across Amazon's sprawling data center network.
The shift from AI model training to inference -- using trained models to make predictions -- is creating an even greater need for power-efficient computing infrastructure.
That just happens to be Qualcomm's specialty.
The semiconductor designer has built expertise in energy-efficient processors over nearly two decades of developing high-performance, low-power chips for the smartphone market.
As part of the deal, Amazon obtained a warrant to buy up to 25 million shares of Qualcomm's stock at an exercise price of $161.26 per share. The warrant vests in stages based on up to $60 billion in chip orders and related purchases. It expires on Sept. 3, 2036.
A strong vote of confidence for Qualcomm's AI chips
The global smartphone industry's slowing growth has prompted Qualcomm to seek greener pastures -- and there aren't many greener than the AI data center build-out race.
Earning Amazon's stamp of approval could provide a powerful boost to Qualcomm's AI customer acquisition efforts.
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Qualcomm. The Motley Fool has a disclosure policy.