Broadcom’s stock experienced a remarkable surge of over 10% on Friday, positioning the company for a record closing price as its latest quarterly earnings surpassed market expectations. The chipmaker’s impressive performance added around $130 billion to its market capitalization, pushing it to nearly $1.6 trillion, with the stock set to close above $335 for the first time.
In stark contrast, shares of Nvidia fell by 3%, while Advanced Micro Devices (AMD) saw a decline of 5.7%. The shifts in stock prices followed Broadcom’s announcement of its third-quarter earnings, coupled with an optimistic outlook for fourth-quarter sales of its AI chips. The company anticipates revenues of $6.2 billion from AI chip sales in the upcoming quarter, outpacing analyst expectations of $5.8 billion according to Bloomberg.
A key highlight of Broadcom’s report was the addition of a new client, OpenAI, with projections indicating that the collaboration could contribute $10 billion to the company’s revenue by 2026. Furthermore, Broadcom is developing an AI chip utilizing cutting-edge “2 nanometer” manufacturing technology. JPMorgan analyst Harlan Sur remarked that this advancement places Broadcom “well ahead of NVDA” and other competing chip manufacturers.
William Blair analyst Sebastien Naji noted that Broadcom’s latest chip designs are solidifying its status as “the leading alternative” to Nvidia. Unlike Nvidia, which specializes in general-purpose AI chips known as GPUs, Broadcom focuses on customized chips, referred to as ASIC accelerators. This distinction has fueled an ongoing debate on Wall Street regarding the potential competition between Broadcom’s custom chips and Nvidia’s more broadly applied GPU solutions.
Morgan Stanley analysts had previously expressed confidence that ASICs could capture market share from Nvidia’s AI GPUs, although Nvidia has historically maintained a dominant position in the sector. However, Broadcom’s recent results indicate that its custom chips are making significant inroads in the competitive AI landscape. Bank of America analyst Vivek Arya projected that Broadcom could see its share of the AI compute and networking market increase from the current 11% to 24% by 2027. Nonetheless, Arya tempered his outlook by suggesting that while Broadcom is indeed expanding its presence, this growth might not directly threaten Nvidia’s market dominance.
The backdrop to Broadcom’s success is Nvidia’s recent performance, which fell short of Wall Street’s expectations. Nvidia’s data center revenue, which includes sales of its AI chips, was notably below analysts’ estimates, leading to a nearly 7% decline in its shares over the past month. Despite these challenges, Nvidia remains the world’s most valuable company, boasting a market capitalization exceeding $4 trillion.
