Broadcom's AI Chip Demand Boosts Sector Stocks
On Friday, shares of AI-focused semiconductor companies saw remarkable gains following Broadcom's positive financial results, which highlighted a surge in demand for its specialized AI chips. Broadcom's continuous growth outlook in this sector appears to have elevated investor sentiment for the broader industry.
Broadcom (NASDAQ:AVGO) reported a staggering 220% year-over-year increase in AI revenues driven by demand for processors and networking components. Despite an anticipated decline in non-AI chip demand during the first quarter, its share price rose by 14%. This positive announcement reverberated across the sector, leading to increases in the stock prices of several of Broadcom's competitors.
Marvell Technology (NASDAQ:MRVL) saw a 6.4% rise in its stock price. Other semiconductor companies also benefitted; Micron Technology went up by 2.25%, Nvidia (NASDAQ:NVDA) increased by 1.5%, Advanced Micro Devices (NASDAQ:AMD) rose by 1.4%, and Taiwan Semiconductor (NYSE:TSM) climbed by 2%.
Analysts noted the developments, with Morgan Stanley commenting on the strong results despite expectations of a slowdown. The firm acknowledged the resilience of ASIC revenue cycles and the potential for a return to stocks that have long-term momentum attracting investor interest. They raised their price target for Broadcom from $180 to $233, indicating a potential upside of 29% from the current close.
Raymond James provided insights on Broadcom's financial quarter results and revenue outlook, which were in line with expectations. A key highlight of the call was the management's forecast of a $60 to $90 billion opportunity in AI with its three hyperscale customers by 2027. This estimate is based on the construction of significant GPU/XPU clusters and could be further expanded with two new hyperscale customers. The projection anticipates an approximate 60% compound annual growth rate from these clients, aligning with general growth expectations shared by competitors like AMD in the overall accelerator market. However, the firm also cautioned that it was too early to take definitive positions on market share and SAM estimates for 2027, indicating a preference for other companies like Nvidia, Marvell, AMD, Micron, and SemiCaps in the data center AI space.