Sell Nvidia, Buy Broadcom! What is the market saying on Friday?

Broadcom's recent optimistic forecast about the potential of artificial intelligence over the next three years has sparked a strong reaction in the market.

On Friday, Broadcom's stock price recorded a historic single-day increase, rising over 24%. Meanwhile, the PHLX Semiconductor Index also rose by 3.4%.

However, both NVIDIA and AMD saw their stock prices decline, making them the two biggest laggards in the chip index. NVIDIA's stock price fell by 2.3%, while AMD dropped by 2.8%.

Mizuho analyst Jordan Klein pointed out that Wall Street is paying attention to the demand for ASICs (Application-Specific Integrated Circuits) from large tech companies, which may be one reason for NVIDIA's stock decline:

"In my view, custom chips will rapidly gain share from GPUs each year, although GPUs will continue to dominate in training purposes."

The Rise of ASICs Challenges the Dominance of GPUs

Broadcom previously predicted that based on its current large-scale customer base, the potential market for fiscal year 2027 will reach between $60 billion and $90 billion.

Klein noted that Wall Street is focusing on the demand for ASICs from large tech companies, which may be one reason for NVIDIA's stock decline.

He stated that in the coming years, custom chips will gradually take market share from expensive GPUs in generative AI applications. Although GPUs will continue to dominate AI training, the rise of ASICs raises questions for investors about whether companies like Meta Platforms Inc. and Alphabet Inc. will shift towards ASICs.

Klein further indicated that some investors may choose to sell NVIDIA stock in the short term to strengthen their positions in Broadcom. This shift reflects the market's confidence in Broadcom's future growth potential.

Melius Research analyst Ben Reitzes believes that Broadcom's comments are positive news for all AI semiconductor and networking companies, as it indicates that large companies will continue to invest in the AI space.

Broadcom's forecast not only benefits itself but also drives up the stock prices of other companies. Marvell Technology Inc.'s stock price rose by 10.8% on the day, and Arista Networks Inc.'s stock price also increased by 5.1% due to optimistic comments about AI networking.

Reitzes pointed out that Broadcom's outlook suggests that the growth rate of AI networking will outpace that of custom silicon, further boosting Arista's market performance In the future, as large companies continue to increase their investments in AI, the competition between custom chips and GPUs may become even more intense