On Thursday, Broadcom’s (AVGO) stock surged following reports of the company securing a new AI chip client, driving investor interest in the tech sector.
Nvidia and Qualcomm play pivotal roles in powering global technology, with around 750 chip manufacturers shaping the landscape of digital devices. The competition in this sector is intense, fueling significant market movements driven by these tech giants and AI-focused companies. Understanding the dynamics of this industry is crucial for investors navigating this rapidly evolving landscape.
Based in Palo Alto, California, Broadcom hosted an entrepreneurial event titled “Enabling AI Infrastructure” on Wednesday. During the event, Broadcom showcased its cutting-edge silicon, storage, and networking technologies tailored for data centers specializing in artificial intelligence applications.
Moreover, Broadcom disclosed the addition of a new customer to its Artificial device business, known for manufacturing application-specific integrated circuits (ASICs). Speculations arose among Wall Street analysts regarding the identity of this undisclosed tech giant potentially being ByteDance, the parent company of TikTok. Other notable clients of Broadcom’s AI ASIC products include Google (GOOGL) under Alphabet and Meta Platforms (META) representing Facebook.
Analyst William Stein from Truist Securities suggested that Amazon (AMZN) or Apple (AAPL) could be the unidentified third client for Broadcom’s AI ASIC solutions. Stein highlighted the significance of this partnership, indicating a long-term commitment and bespoke silicon solutions. However, the certainty surrounding this speculation remains moderate.
With a price target set at $1,566, Stein recommended Broadcom shares as a buy, reflecting positive market sentiment.
Strong Performance Boosts Broadcom Stock
Broadcom’s stock witnessed a 5.6% increase, closing at $1,348 on the current trading day.
JPMorgan analyst Harlan Sur reiterated his bullish outlook on Broadcom, maintaining a price target of $1,700. He commended the company’s strategic vision for its AI server communication and ASIC business, foreseeing robust and sustainable growth in this segment.
Broadcom emphasized the competitive edge of its custom AI chips over graphics processing units (GPUs) offered by industry players like AMD (AMD) and Nvidia (NVDA). The tailored design of Broadcom’s chips enhances performance efficiency for specific tasks, setting them apart in the market.
Upgraded Rating and Growth Prospects
Broadcom anticipates a significant uptick in its semiconductor revenue, with AI chips projected to contribute over 35% of sales by 2024, surpassing $10 billion. AI device sales are expected to represent around 15% of the company’s semiconductor revenue next year.
TD Cowen analyst Matthew Ramsay upgraded Broadcom’s stock rating to outperform the market, revising the price target to \(1,500 from \)1,400. Ramsay expressed confidence in Broadcom’s growth trajectory, driven by AI computing, networking advancements, and software expansion, outperforming market expectations.
Broadcom’s stock is featured on two IBD stock lists: Big Cap 20 and Tech Leaders.
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