Broadcom’s stock has soared in recent weeks, giving the company a market value of more than $1 trillion. Broadcom is critical to companies seeking alternatives to Nvidia’s AI chips. Custom AI chips are gaining traction, giving tech companies more bargaining power, analysts say.
The rise of AI and the computing power it requires is thrusting all kinds of previously obscure companies into the spotlight. This week it’s Broadcom.
The company’s stock price has soared since late last week, pushing it into the $1 trillion market cap club. The boost came from a blockbuster earnings report showing that revenue from custom AI chips increased 220% year over year.
In addition to selling many parts and components for data centers, Broadcom designs and sells application-specific integrated circuits, or custom chips.
Designers of custom AI chips, led by Broadcom and Marvell, are entering a growth phase, according to Morgan Stanley.
Custom chips are getting faster
The biggest companies in artificial intelligence are buying a ton of chips from Nvidia, a $3 trillion giant with an estimated 90% market share for advanced AI chips.
However, being heavily dependent on one supplier is not a comfortable position for any company, and many of Nvidia’s large customers are also developing their own chips. Most technology companies don’t have large teams of in-house silicon and hardware experts. Among companies seeking custom chips, Broadcom is a leader.
Multipurpose chips like Nvidia and AMD’s graphics processing units are likely to maintain the largest share of the AI chip market in the long term, but custom chips are also growing rapidly.
Morgan Stanley analysts said this week they expect the ASIC market to nearly double to $22 billion next year.
Much of that growth is due to Amazon Web Services’ AI chip Trainium, Morgan Stanley analysts say. Next up is Google’s in-house AI chip, otherwise known as Google’s in-house AI chip. tensor processing unitproduced by Broadcom.
When it comes to the real-world value of chips, Amazon and Google have the upper hand. But OpenAI, Apple, and TikTok’s parent company ByteDance are also reportedly developing chips with Broadcom.
ASICs give you bargaining power
A study by Morgan Stanley found that custom chips can offer more value in terms of performance versus cost.
ASICs can also be designed for a technology company’s unique internal workloads, the bank’s analysts said. The better the quality of these custom chips, the more bargaining power the tech company could have when negotiating with Nvidia over GPU purchases. But this will take time, the analysts wrote.
In addition to Broadcom, Silicon Valley neighbor Marvell is also cashing in on the ASIC market, along with Asia-based companies Alchip Technologies and MediaTek, analysts added in a note to investors.
Analysts don’t expect custom chips to completely replace Nvidia GPUs, but without them, cloud service providers like AWS, Microsoft and Google will have significantly less bargaining power against Nvidia. Dew.
“Over the long term, if it works well, cloud service providers may enjoy greater bargaining power in procuring AI semi-finished products using their own custom silicon,” Morgan Stanley analysts said. said.
Nvidia’s huge R&D budget
This may not be all bad news for Nvidia. The $22 billion ASIC market is smaller than Nvidia’s revenue in just one quarter.
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Nvidia’s R&D budget is huge, and many analysts are confident in Nvidia’s ability to remain on the cutting edge of AI computing.
And as Nvidia rolls out new, more advanced GPUs, its older products will become cheaper and perhaps even more competitive with ASICs.
“We believe the pace of ASICs will need to accelerate to remain competitive against GPUs,” Morgan Stanley analysts said.
Still, Broadcom and the chipmakers below it in the supply chain, such as TSMC, are likely to get a boost each time the cloud giant orders another custom AI chip.
