Broadcom poised to Outperform Nvidia in AI Chip Race, Says Fund Manager
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While Nvidia currently dominates the artificial intelligence (AI) chip market, a leading fund manager believes Broadcom is primed for significant growth and could even surpass Nvidia’s performance in the coming years. Stephen Yiu, portfolio manager of the Blue Whale Growth Fund, argues that major tech companies are actively diversifying their AI chip supply chains, creating a lucrative prospect for Broadcom.
Yiu’s prediction stems from the observation that tech giants like microsoft, Amazon, Google, and Meta, while heavily reliant on Nvidia’s GPUs, are simultaneously developing their own custom AI chips. “Broadcom is not Nvidia, but we would expect Broadcom to be the next Nvidia in terms of outperformance potential, just because they are working very closely with the big tech companies,” Yiu told CNBC’s Pro Talks. He further emphasized the cost factor: “Nvidia’s gpus are very powerful, but simultaneously occurring also very expensive. From Microsoft’s perspective, you don’t want to become overly dependent on one single supplier.”
Broadcom’s stock has already surged over 126 percent this year, reaching a market capitalization exceeding $1 trillion after reporting a more than threefold increase in AI revenue to $12.2 billion in 2024. This impressive performance makes Broadcom one of Blue Whale’s top ten holdings. CEO Hock Tan recently revealed that Broadcom is developing custom AI chips with three major cloud computing customers—analysts point to Meta, Alphabet, and ByteDance—projecting each will deploy 1 million AI chips in networked clusters by 2027.
While Yiu maintains a position in Nvidia, he has significantly reduced its weighting in his fund’s portfolio. “It’s a matter of the potential outperformance from here,” he explained. “We’re not expecting Nvidia to double from here in the next two years. It’s very tough from a law-of-large-numbers perspective.”
Wall Street Weighs In
Wall Street analysts largely echo the bullish sentiment surrounding Broadcom. Goldman Sachs recently raised its price target to $240, citing “even higher conviction on the company’s forward revenue and earnings growth outlook.” Morgan stanley calls Broadcom “one of the most compelling ways to play AI semis” over the next few years, while Bernstein analysts also raised their price target to $250, noting that the “AI story seems to really be coming into its own.”
However, Bank of America issued a note of caution, highlighting potential risks from “stiff competition against NVDA’s stronghold in merchant silicon and enterprise customers.”
Yiu believes Broadcom’s smaller size presents a compelling investment opportunity. “For a $1 trillion company to grow 50% to become $1.5 trillion is reasonable. But for Nvidia to do that, they would need to add another $1.5 trillion, which is a very big number,” he stated.
Broadcom’s custom chips, known as XPUs, are designed for specific customer needs, differentiating them from Nvidia’s GPUs. The company’s expanding AI business complements its diverse portfolio, including networking components and a substantial software division following its acquisition of VMware.
Taking Profits: A Cautious Note
CNBC’s Investing Club, however, is adopting a more cautious stance on Broadcom following its recent rally. Jeff Marks, director of portfolio analysis, stated that the Club would trim its position if allowed, saying, “Even though the market is technically oversold — meaning we are more of a buyer than a seller — we would be selling 100 shares of Broadcom on Monday if we were not restricted. Although we remain bullish on the long-term AI outlook CEO Hock Tan outlined last week on his earnings call, our discipline dictates it is time to ring the register and lock in gains on the stock’s terrific 115% move this year.We are downgrading our rating to a 2.”
— CNBC’s Ari Levy, Ashley Capoot and Michael Bloom contributed reporting.
Broadcom: The Next AI Chip Titan?
The AI chip market is booming, with nvidia currently holding the top spot. Though, experts are predicting a potential shake-up, with Broadcom emerging as a strong contender.
In this interview, we speak with Dr. Emily Carter, a Professor of Computer Engineering specializing in chip design and the AI hardware market, to get her insights on whether Broadcom is truly poised to challenge Nvidia’s dominance.
World-Today-news: Dr.carter, Stephen Yiu, a leading fund manager, has publicly stated that Broadcom could be the next big name in the AI chip market. Do you agree with this assessment?
Dr. Carter: Yiu makes some compelling points. It’s true that manny tech giants, like Microsoft, Google, and Amazon, are looking to diversify their AI chip supply chains and investing heavily in developing their own custom AI chips. This presents a significant opportunity for companies like Broadcom who can collaborate closely with these key players.
World-Today-News: Broadcom is already seeing impressive growth in its AI division. Can you elaborate on what factors are driving this success?
Dr. Carter: Broadcom’s custom chips, known as XPUs, are tailored to meet the specific needs of individual clients. This level of customization is highly appealing to companies like Meta, Alphabet, and ByteDance, who are developing their own unique AI applications. Furthermore, Broadcom’s XPUs are rumored to be more cost-effective than Nvidia’s high-end GPUs while still offering powerful performance.
World-Today-News: Nvidia’s GPUs are known for their power and performance. How does Broadcom’s technology compare, and are they truly a viable alternative?
Dr. Carter: While Nvidia undoubtedly holds the edge in raw processing power, Broadcom’s focus on customized solutions and cost-efficiency is a strategic move.For many companies, accessibility and specific functionality may be more valuable than simply having the most powerful chip on the market.
World-Today-News: Several analysts have expressed concern about potential competition from Nvidia. How do you see this rivalry playing out over the next few years?
Dr. carter: This isn’t just a two-horse race. Other players are entering the AI chip market, including Intel and startups specializing in specific AI application areas. The landscape will likely become increasingly diverse, with different companies excelling in different niches. Broadcom has positioned itself well to capitalize on this trend by focusing on customized solutions and partnering closely with key players in the AI ecosystem.
World-Today-News: Thank you for sharing your valuable insights, Dr. Carter. It seems the race for AI chip dominance is heating up, and Broadcom is definitely one to watch.
