Qualcomm strikes AI chip deal with Amazon

Qualcomm QCOM-Q said on Tuesday Amazon AMZN-T could buy up to US$60-billion of its AI data centre chips and related products under a long-term partnership, bolstering the chipmaker’s effort to become a major supplier of AI infrastructure.

The deal highlights intertwined financing in the AI boom, with Qualcomm granting warrants worth about US$4-billion that vest with product purchases and allow the cloud giant to buy shares at US$161.26 a share, according to a regulatory filing.

Shares of San Diego, California-based Qualcomm rose more than 3%.

The agreement is the latest sign of Qualcomm’s efforts to diversify beyond smartphones gaining traction as it faces the eventual loss of its Apple modem business, rising component costs and weaker handset demand.

Qualcomm has spent the past year courting cloud providers with custom AI chips and data centre technology as they seek alternatives to Nvidia’s dominant processors.

Amazon joins Microsoft and Meta among customers backing that push, which Qualcomm expects will help drive data centre chip revenue to US$15-billion by 2029.

“The deal is exactly the kind of development that Qualcomm needed to reassure the market that the lofty data centre ambitions they set for themselves could indeed be met,” said Bob O’Donnell, chief analyst at TECHnalysis Research.

The partnership comes weeks after Marvell Technology struck a similar custom AI chip deal with Alphabet’s Google, giving the tech giant the right to buy a stake worth up to US$12.2-billion.

Under Tuesday’s deal, Qualcomm and Amazon will work on chips for AI inference, a fast-growing market focused on running trained AI models that has become a key battleground among semiconductor firms.

Meanwhile, Amazon’s custom chip business has become a growth driver for its cloud unit, with an annualized revenue run-rate of over US$25-billion at the end of the June quarter.

Beyond computing chips, the deal includes optical communications technology from Qualcomm. The companies will develop high-speed optical connectivity technologies, including solutions extending to 1.6 terabits per second, to support growing bandwidth demands in AI data centres.

That comes as a vote of confidence for the business, a relatively new field for the chip giant after its US$2.4-billion purchase of AlphaWave last year that resulted in its CEO Tony Pialis becoming Qualcomm’s data centre chip chief.

“By incorporating both compute and optical interconnect, Qualcomm is highlighting the range of semiconductor technologies that they can uniquely bring to AI infrastructure,” O’Donnell said.

As part of the tie-up, Qualcomm plans to expand its use of AWS services and infrastructure for chip design workloads, aiming to shorten development cycles.