Broadcom Inc., a leading chipmaker, is emerging as a strong contender in the field of generative AI chips, challenging the dominance of Nvidia Corp. With the potential to capture a significant share of the business for generative AI applications, Broadcom is gaining attention from analysts and investors. The stock has been consolidating below a recent high, but trading volume has been light, signaling a period of rest rather than a mass exodus from the stock.
The recent approval of Broadcom’s acquisition of VMWare Inc. by European regulators has further fueled the company’s rise. In a market where regulators have been strict on mergers and acquisitions, this approval is a positive sign that conditions are easing. While relaxed regulators certainly contribute to Broadcom’s success, the main driving force behind its potential growth is the demand for AI chips.
Broadcom recently introduced the Jericho3-AI chip, designed to connect supercomputers for AI applications. This chip is capable of linking up to 32,000 chips, enabling faster and more efficient communication within data centers. As data centers work harder to train AI systems like Alphabet’s Bard and Microsoft’s OpenAI ChatGPT, the need for seamless connectivity and large-scale data processing becomes crucial.
Although Nvidia currently holds the majority market share for data center connectivity chips, known as graphics processing units (GPUs), Broadcom has a strong position in the market for switchers and routers, which are vital components of cloud networks supporting the AI boom.
Wall Street analysts expect Broadcom’s earnings to remain flat this year but anticipate a 9% increase next year. The company has a track record of exceeding earnings expectations and has shown steady three-year earnings and sales growth rates of 28% and 17% respectively.
In a note from Bank of America, the bank maintained its buy rating for Broadcom, highlighting factors such as a strong sales outlook for the second half of the year, effective inventory management, and a growing AI pipeline that could offset any challenges in non-AI products.
While Broadcom currently has a Moderate Buy rating among analysts, it’s worth noting that there are other stocks that top-rated analysts are recommending as better buys, according to MarketBeat.
Broadcom’s potential for growth in the generative AI chip market coupled with its strong position in the switchers and routers sector make it an attractive contender in the AI gold rush. As the demand for AI applications continues to rise, Broadcom’s strategic moves in this space and its solid earnings performance position it well for future success.
