Artificial intelligence dominated capital markets in the first half of the year, and several parts of the AI value chain outperformed. The chip sector stood out: the Philadelphia Semiconductor index rose more than 80 percent as the first half drew to a close, significantly beating the S&P 500.
However, not all companies within the sector benefited equally from the AI tailwind, and Qualcomm has so far delivered more muted performance. The company is undergoing structural changes and appears to be moving away from being seen primarily as a smartphone-related chipmaker toward a more diversified business mix.
Target areas: physical AI, automotive, data centers
Qualcomm is concentrating on so-called physical AI, which includes applications such as autonomous vehicles, industrial robots, and smart manufacturing systems. The company is also expanding in automotive solutions and the data-center segment, moves that could reduce its cyclical exposure to the mobile market.
Management’s long-term projections point to strong chip demand: Qualcomm has indicated that revenue from non-smartphone sources could reach $40 billion by 2029, up from a prior target of $22 billion.
Data-center push and Dragonfly C1000
Qualcomm is preparing to establish a foothold in the data-center market. Production of its new Dragonfly C1000 chips could begin in the coming years. The company is also working with several hyperscaler partners, which may provide additional long-term growth avenues.
Valuation and risks
The stock’s valuation has risen recently: the one-year forward price-to-earnings ratio is around 17, higher than the five-year average. Nevertheless, within the sector Qualcomm still appears relatively discounted, as investors remain uncertain whether the company can successfully diversify away from the smartphone market to offset weaker mobile revenue.
An additional risk is Apple’s in-house modem development, which could cause medium-term revenue losses for Qualcomm; Apple has been an important customer in recent years.
Overall, Qualcomm is repositioning toward physical AI and data-center opportunities and projects materially higher non-smartphone revenue by 2029, while markets continue to await clearer validation of the company’s diversification strategy.
