Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
As far as the stock market goes, the universal obsession with artificial intelligence has mostly centred on Nvidia. It is not surprising: the market capitalisation of the AI boom’s signature chipmaker has more than quadrupled in two years to $2.7tn. But in the past year, a dollar would have been better invested in its smaller, less well-known rival: Broadcom.
For both companies, the launch of ChatGPT in 2022 — and resulting rush to build AI data centres — has proved a windfall. AI-related activity made up just over a quarter of Broadcom’s revenue for the three months ending in February, up from essentially nothing just a few years ago. By June, it expects that to be 30 per cent, growing at more than 40 per cent a year.
Analysts have been happy to take these impressive rates and run with them. They estimate Broadcom’s total sales will exceed $80bn by 2027 — 60 per cent higher than last year. Within that, AI equipment sales are expected to grow 160 per cent, according to Visible Alpha. In Broadcom’s older businesses, such as broadband chips, they expect no growth at all.
Nvidia and Broadcom may be fellow passengers on the AI hype train, but they occupy different carriages. Nvidia’s off-the-shelf chips, known as graphics processing units, are the state of the art. But Broadcom helps so-called hyperscalers build silicon for more narrow tasks, often referred to as XPUs. Google is one of three big customers. Broadcom chief Hock Tan on Thursday suggested four more could follow.
The trade-off is not simple. Custom chips can be cheaper but not always, such as when factoring in the cost of getting them to talk to each other, Morgan Stanley has noted. Bespoke silicon could be a fifth of the $350bn market for so-called AI accelerators by 2027, according to Mizuho Securities, but companies such as Marvell, MediaTek and Alchip all want a piece, too.
What Broadcom has in spades is ambition. Tan has undertaken nearly $100bn of mergers and acquisitions since 2016. That sum would have more than doubled had a bid for rival Qualcomm not been blocked during the first Donald Trump administration in 2018.
Tan is also happy to throw around big, slightly vague numbers. He told investors in December that his top three customers would spend up to $90bn on AI-related investment by 2027. This is part showmanship; it is unclear how much would go to Broadcom. The Broadcom chief suggests his next four customers could, eventually, add the same again.
Investors are buying this exuberance. Broadcom is valued at 15 times this year’s forecast sales — a multiple twice its 10-year average, according to LSEG. Its shares are up 16 per cent since November’s US election; Nvidia’s are down by roughly the same margin. There is room for both in the data centre sector. In stockpickers’ portfolios, Broadcom is gaining an edge.
john.foley@ft.com
