Custom Application-Specific Integrated Circuits (ASICs) provider Broadcom (NASDAQ:AVGO) trended on Tuesday as the Big Tech giants (including Microsoft Corp (NASDAQ: MSFT), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Platforms inc (NASDAQ:META) continue to invest in their artificial intelligence ambitions.
Macquarie analyst Arthur Lai initiated coverage on Broadcom with an Outperform rating and a price forecast of $420. The analyst cited its custom-designed microchips or ASIC market, which is surpassing the Graphics Processing Unit (GPU) market, helmed by Nvidia Corp (NASDAQ:NVDA), as it gains traction amongst hyperscalers and vertical AI markets.
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Lai expects Broadcom to outperform due to its specialized chip market moat.
The stock gained over 57% year-to-date, topping the Nasdaq 100 index’s (which includes Broadcom) 16% returns.
Broadcom and other semiconductor leaders gained momentum as corporate earnings, cloud contracts, and surging demand for AI infrastructure fueled sector-wide growth.
Nvidia, Advanced Micro Devices (NASDAQ:AMD), and other semiconductor players joined Broadcom, benefiting from a wave of developments tied to Oracle (NYSE:ORCL), OpenAI, and Microsoft.
On Sept. 4, Broadcom reported third-quarter revenue of $15.95 billion, up by 22%, topping the analyst consensus estimate of $15.83 billion. AI revenue rose 63% to $5.2 billion. The company expects fourth-quarter AI sales of $6.2 billion. Broadcom confirmed a $10 billion custom AI chip order from OpenAI.
Other significant industry partnerships that fueled semiconductor sector optimism included Oracle’s five-year, $300 billion deal with OpenAI to provide cloud capacity for its Stargate data centers. Microsoft expanded its partnership with OpenAI by loosening exclusivity on Azure while ramping up in-house AI chip investment.
Big Tech’s AI investment continues to anchor the industry. Meta Platforms, Microsoft, and Alphabet will likely spend over $240 billion on AI infrastructure by 2026.
In February, Vivek Arya of BofA Securities maintained an upbeat outlook for Broadcom, citing the AI frenzy. He expected Nvidia to retain more than 80% of the GPU market, noting that ASICs could capture 10% to 15% of the overall accelerator space.
AVGO Price Action: Broadcom shares were down 0.89% at $360.86 at the time of publication on Tuesday. The stock is approaching its 52-week high of $374.23, according to Benzinga Pro data.
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