Intensified competition in network technology, Nvidia may not beat Broadcom

Categories : tech

Broadcom's financial report highlights three major positives: wired communication, software revenue, and stock split.

After Nvidia's stock price rose by 3.6% the previous day, it increased by another 3.52% on Thursday, reaching $129.61 per share. Broadcom surged by 12.27%, closing at $1678.99 per share.

In its financial report, Broadcom highlighted the strong demand for AI chips. As a leader in the high-end AI ASIC (Application-Specific Integrated Circuit) market, Broadcom assists major companies like Google in designing custom chips.

Broadcom's executives actively emphasized that their chips are not in direct competition with Nvidia's GPUs. Broadcom CEO Hock Tan stated during the earnings call, "Our approach is to not use GPUs, but to make GPUs work well." He said that Broadcom's chips would complement customers who are building increasingly larger GPU clusters.

However, in competing with Nvidia's Spectrum-X Ethernet networking platform, Broadcom is in direct competition with Nvidia. Broadcom's executives openly criticized Nvidia's new platform as "lacking innovation" and emphasized that Broadcom had already launched similar solutions.

Broadcom stated that currently, 7 out of the top 8 AI chip clusters have deployed Ethernet infrastructure supported by Broadcom's technology, and it is expected that all hyperscale AI clusters will be supported by Ethernet next year.

"We have been in the Ethernet business for over 25 years... We have experienced many market transformations and seized many market shifts from cloud-scale networks to routing, and now AI, so this is a natural extension of our entry into the AI field," Tan said.NVIDIA expects Spectrum-X to generate billions of dollars in revenue within a year. Broadcom's latest quarterly network revenue was $3.8 billion, a 44% increase year-over-year.

As for the performance of other chip manufacturers, AMD fell by 0.2%; Intel fell by nearly 1%.

NVIDIA's stock price has risen by 162% so far this year, far surpassing the S&P 500 index, which rose by 14% during the same period, and the Nasdaq index, which rose by 18%.

Broadcom raises AI revenue forecast, analysts raise target prices

Broadcom released its financial report: revenue of $12.5 billion, semiconductor division $7.2 billion, higher than the expected $7.12 billion, infrastructure software division $5.29 billion, higher than the expected $4.93 billion.

The outstanding performance of Broadcom is still centered on the increase in the proportion of AI revenue in the fundamentals, the technological advantage has bargaining power, and as the 8th largest constituent stock in the S&P 500 (second only to NVIDIA in semiconductor stocks), it presents the advantage of large funds in a bull market, coupled with high-priced stocks and lower visibility than other similar stocks, driving the concentration of chips, accelerating the stock price reaction to the favorable financial report this time, jumping by 13%. Broadcom's surge has driven the promotion of related electronic stock themes in Taiwan's stock market. In terms of this week's capital flow, the sub-group that combines the iPhone 16 new machine effect and the Wifi7 theme is most favored by speculative funds, and the other is the network communication stocks, showing a phenomenon of rising together and increasing in volume.

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Three major benefits, both in the fundamentals and the chip side:

1. Wired communication: The main reason for this increase in AI revenue is the rise in demand for ASIC self-developed accelerators commissioned by switch manufacturers and CSP manufacturers (Google, Meta), especially in the ASIC field, there may be new server orders from Tiktok in the second half of the year;

2. Software revenue: Since the acquisition of VMWare, it has continued to grow, and it previously announced the full termination of the buyout authorization, changing to a subscription system, so on the strong momentum of cloud services, there is no sign of a decrease in demand, and the change in pricing method is also conducive to driving the sustainability of revenue.3. Stock Split: With the stock price also above 1000 yuan, semiconductor leader NVIDIA announced a 1-for-10 stock split, and Broadcom also announced a stock split this time, also a 1-for-10 split, which is expected to be implemented on July 15th.

According to TheStreet, Broadcom CEO Hock Tan is optimistic about the growth driven by AI and stated, "We expect the strong momentum of AI to continue. Because of this, we now expect net revenue to grow by 40% year-on-year, up from our previous expectation of 35%."

Broadcom pointed out that in the second quarter financial report as of May, AI revenue grew by 280% year-on-year, reaching 3.1 billion US dollars. The group expects this figure to exceed 11 billion US dollars before the end of the current fiscal year.

The adjusted EPS in the second quarter grew by 6.2% year-on-year to 10.96 US dollars, and the total revenue increased by 43% year-on-year to 12.49 billion US dollars. Both figures exceeded Wall Street's forecasts.

Many Wall Street analysts have adjusted Broadcom's target price, raising the median by 250 US dollars to 1,950 US dollars per share.

Oppenheimer analyst Rick Schafer raised his target price from 1,765 US dollars to 2,000 US dollars, while Citi analyst Christopher Danely added another 190 US dollars, making the target price now at 1,750 US dollars.

Jefferies analyst Blayne Curtis's target price forecast is the highest on Wall Street, at 2,050 US dollars per share, while the lowest forecast is from Rosenblatt analyst Hans Mosesmann at 1,650 US dollars per share.

Wells Fargo analyst Aaron Rakers raised his target price by 270 US dollars to 1,700 US dollars per share after Broadcom released its financial report.

Third Bridge analyst Lucas Keh pointed out that AI revenue remains the main driving force for Broadcom's sales in the second half of the fiscal year. He believes that Google is expected to add an additional 5 billion US dollars in annual revenue for Broadcom, and Broadcom's customized ASIC solutions will also bring an additional revenue opportunity of 2 billion US dollars from Meta.