Qualcomm Introduces Custom Data Center CPUs with Nvidia Tech

Qualcomm's stock (NASDAQ: QCOM) has underperformed markets over the past year, falling 22.89% as the broader Nasdaq 100 has added 14.75%. With the stock falling in the pre-market (-1.64%), could aligning with Nvidia provide a shift in sentiment for the firm?

The company has positioned itself firmly in the front running of the semiconductor industry, and has since announced its plans to develop custom data center central processing units (CPUs) utilizing Nvidia's (NASDAQ: NVDA) technology.

This move marks Qualcomm's strategic push into the high-performance data center market, leveraging Nvidia's established presence in the artificial intelligence (AI) arena.

Nvidia's graphical processing units (GPUs) are widely recognized for their dominance in the AI market. However, they are traditionally paired with CPUs from leading providers such as Intel and AMD. To diversify, Nvidia has developed its “Grace” CPU using technology from Arm Holdings, showcasing an attempt to broaden its luminary offerings in the market.

Previously, Qualcomm embarked on the development of an Arm-based CPU in partnership with Meta Platforms during the 2010s. However, this initiative was halted due to financial constraints and legal challenges. Reinvigorating its CPU development efforts, Qualcomm acquired former Apple chip designers in 2021 to bolster its technical capabilities and moot a comeback.

In alignment with its focus on innovation, Qualcomm has entered into a letter of understanding with the Saudi Arabian AI company Humain. This agreement aims to venture into the development of a custom data center CPU, emphasizing Qualcomm's reinvigorated drive into AI and data center advancements. These future chips are set to incorporate Nvidia technology to facilitate communication with Nvidia's powerful GPUs.

Cristiano Amon, Qualcomm's CEO, has stressed the company's commitment to advancing high-performance, energy-efficient computing solutions for the data center landscape. This initiative not only signifies Qualcomm's technological advancements but also showcases a strategic partnership with Nvidia, aiming to bolster its presence in the burgeoning markets of AI and data centers.

Looking to analysts, Qualcomm's mean price target sits at $173.79. indicating a perceived upside or more than 10% from current levels, with several analysts keeping a “Buy” target on the stock. In recent adjustments, Benchmark have decreased their price target on QCOM to $200 from $240 and keeps a Buy rating. A few other anaylsts have lowered their price targets on QCOM, namely Susquehanna, dropping their price target from $210 to $190 but the analyst keeps a “Positive” rating on the shares. Following Q1 results, Loop Capital also lowered the firm's price target on Qualcomm from $180 to $155, and keeps a “Hold” rating for now. Seaport Research have initiated coverage on the stock keeping a neutral stance.

Qualcomm's journey into developing data center processors that integrate seamlessly with Nvidia's GPUs represents a noteworthy shift. It aligns with both companies' strategic goals of dominating the high-performance computing and AI-driven markets.