Qualcomm shares surge 8% on earnings beat, OpenAI chip deal

Qualcomm shares surged more than 8 per cent on Thursday after the chipmaker reported better-than-expected second-quarter earnings and announced a partnership with OpenAI to develop AI-powered smartphone chips.

The stock traded around $215 in midday trading, extending a rally that has pushed Qualcomm shares up roughly 48 per cent over the past three months. Craig Hallum upgraded the stock to a buy rating following the results, adding to the session gains.

Earnings beat

Qualcomm’s fiscal second-quarter results, reported after the close on Wednesday, topped analyst estimates on both revenue and earnings per share. The chipset segment, which includes smartphone processors and RF front-end components, drove the upside amid steady global handset demand.

Revenue in the quarter came in ahead of consensus, driven by stronger-than-expected sales of Snapdragon 8-series processors for premium Android devices. The company also reported growth in its licensing division, which generates royalty revenue from the underlying patent portfolio covering 5G and cellular technologies.

The connectivity and automotive divisions posted sequential growth. Qualcomm has been diversifying beyond its core smartphone market into automotive infotainment, industrial IoT, and networking chips, a strategy that has started to show in the revenue mix. Automotive revenue grew at a double-digit pace year-over-year, reflecting design-win ramps with several major carmakers.

OpenAI partnership

The partnership with OpenAI marks Qualcomm’s most significant push into on-device AI. Under the deal, Qualcomm will develop custom chips optimised for running OpenAI’s language models directly on smartphones rather than relying on cloud-based inference.

The move positions Qualcomm to capture a share of the growing market for mobile AI processing, where data privacy and latency concerns are driving demand for on-device computation. Apple has already invested heavily in on-device AI with its A-series and M-series neural engines, and Qualcomm’s OpenAI partnership is a direct challenge to that advantage in the Android ecosystem.

Analysts said the deal could accelerate the upgrade cycle for premium Android smartphones, which have lagged behind Apple in AI features. Qualcomm’s Snapdragon 8-series processors already include an AI engine, but the custom chip development with OpenAI goes further by optimising the hardware-software stack for a specific model architecture. The partnership could give Qualcomm a differentiated position in the premium tier, where smartphone makers are looking for hardware features that justify higher price points.

Analyst reaction

Craig Hallum raised its price target on Qualcomm to $250 from $200, citing the earnings beat and the OpenAI partnership as catalysts not fully priced into the stock. Several other Wall Street firms issued similar upgrades in the days following the results.

The broader semiconductor sector also rose on the news, with the Philadelphia Semiconductor Index gaining 2.3 per cent on Thursday. AMD, Nvidia, and Broadcom all traded higher in sympathy, reflecting positive sentiment from Qualcomm’s results and the signals they sent about end-market demand.

The analyst consensus now points to continued upside for Qualcomm, though the speed of the recent rally has prompted some caution. The stock has added roughly 70 per cent over the past month alone, a pace that historically has been followed by consolidation.

What happens next

Qualcomm’s ability to monetise the OpenAI partnership depends on execution. Developing custom inference chips for a specific model architecture carries technical risk, and the revenue contribution is unlikely before the next fiscal year.

In the nearer term, the company faces questions about the sustainability of its handset segment growth. Global smartphone shipments are forecast to grow only 2-3 per cent this year, leaving Qualcomm reliant on content gains per device and expansion into adjacent markets to drive above-market growth.

The stock’s valuation has also become a consideration after the three-month rally. At roughly 22 times forward earnings, Qualcomm trades above its five-year average multiple, leaving less room for disappointment when it reports fiscal third-quarter results in August. Investors will watch for signs that the OpenAI partnership can translate into tangible revenue growth beyond the initial announcement.