Broadcom: A Hidden Gem in the World of AI Chips

by Arthur Herring
in News, PC
on 7 June 2024

Broadcom Inc, a leading semiconductor manufacturer and designer, is often overshadowed by chip giant Nvidia in the world of artificial intelligence (AI) chips. However, according to Clare Pleydell-Bouverie, a portfolio manager at Liontrust Asset Management, Broadcom is a hidden gem that shouldn’t be overlooked.

While Nvidia is widely regarded as the poster child for AI chips, Pleydell-Bouverie points out that Broadcom also generated over a billion dollars in revenue from AI chips. In fact, Broadcom is the second-largest manufacturer of semiconductors in the industry.

Despite flying under the radar, Broadcom has been experiencing significant growth. Its shares are up approximately 26% year-to-date and nearly 80% over the past 12 months. The company’s forward earnings multiple stands at around 30, compared to Nvidia’s multiple of 45.

In the first quarter, Broadcom exceeded analysts’ expectations with revenue of $11.96 billion. On the analyst call, CEO Hock Tan mentioned that the company expects to generate $10 billion from AI-related chips this year.

Pleydell-Bouverie highlights Broadcom’s leading position in the custom ASICs segment and its involvement in developing chips for companies like Meta Platforms and Alphabet’s Google. She also believes that Broadcom is emerging as a leader in the networking chips domain, with its advanced semiconductors powering Ethernet networks.

Analysts from Bernstein also support the outlook for Broadcom, expecting its shares to continue to climb this year. With a valuation that remains compelling and a better narrative than many of its peers, Broadcom stands out as one of the cheapest “AI play” semiconductors. The average price target among analysts covering the stock is $1,562.62, implying around 10% potential upside.

While Nvidia may steal the spotlight, Broadcom’s impressive performance, strong position in the industry, and growth prospects make it a hidden gem in the world of AI chips. Investors would be wise to give this underappreciated chipmaker the attention it deserves.

Additional facts relevant to the topic:

1. Broadcom is headquartered in San Jose, California, and was originally founded in 1961 as a division of Hewlett-Packard.

2. The company has a diverse portfolio of products and services, including semiconductors for wired and wireless communication, enterprise storage, industrial applications, and more.

3. Broadcom has a strong presence in the smartphone market, providing components for major manufacturers like Apple and Samsung.

4. In addition to AI chips, Broadcom also produces a range of other semiconductor products, such as microcontrollers, processors, and memory chips.

5. The company has a global presence with operations in over 35 countries and serves customers in various industries, including telecommunications, automotive, and consumer electronics.

Key questions and answers:

1. How does Broadcom’s revenue from AI chips compare to Nvidia’s?
– While Nvidia is widely recognized as a leader in AI chips, Broadcom also generates significant revenue from AI chips, with over a billion dollars in sales. However, Nvidia’s revenue in this segment is generally higher.

2. Which companies does Broadcom develop chips for in the networking domain?
– Broadcom is involved in developing chips for companies like Meta Platforms (formerly Facebook) and Alphabet’s Google in the networking domain.

Challenges or controversies associated with the topic:

1. Competition from other semiconductor manufacturers: Broadcom faces competition from established players like Intel and Qualcomm, as well as emerging companies in the AI chip market.

2. Increasing demand for AI chips: As the adoption of AI technology continues to grow, Broadcom may face challenges in meeting the increasing demand for its AI chips and maintaining its market share.

Advantages of Broadcom:

1. Diverse product portfolio: Broadcom offers a wide range of semiconductor products, catering to various industries and applications, which provides the company with a diversified revenue stream.

2. Strong position in the industry: With its leading position in the custom ASICs segment and involvement in developing chips for major companies, Broadcom has established itself as a reputable player in the semiconductor industry.

Disadvantages of Broadcom:

1. Reliance on specific industries: Broadcom’s success is closely tied to the growth and demand in industries like smartphones and networking. Any downturn in these industries could adversely impact the company’s performance.

2. Competitive market: The semiconductor industry is highly competitive, with numerous players vying for market share. Broadcom faces intense competition from both established and upcoming rivals.