Next "NVIDIA": Broadcom?

Nvidia is not the only "shovel seller" in the AI gold rush, and will Broadcom be the next Nvidia?

On June 2, after Broadcom announced better-than-expected financial results, Wall Street analysts believe that Broadcom is likely to be another company that benefits from the demand for AI infrastructure after Nvidia.

On June 1 local time, Broadcom, a leading global wired and wireless communication semiconductor company, released its second-quarter financial report for fiscal year 2023 ending April 30. The report showed that Broadcom's Q2 revenue reached US$8.733 billion, an increase of 8% year-on-year, exceeding the market's expected US$8.72 billion.

Among them, the chip business revenue was US$6.81 billion, exceeding the market's expectations, and an increase of 9% year-on-year; the infrastructure software business grew by 3% to US$1.93 billion.

Broadcom CEO Hock Tan said on a conference call after the financial report that under the AI boom, the demand for AI chips from many companies will double the company's AI-related revenue, and it is expected that AI-related revenue in the next fiscal year will increase to about US$7.5 billion, and AI chip revenue will soon exceed 25% of the company's total revenue. It is expected that Broadcom's revenue in the third quarter will reach about US$8.85 billion, a year-on-year increase of 5%.

Morgan Stanley analysts said that recently, with Apple reaching a multi-billion dollar agreement with Broadcom and Google increasing orders with Broadcom, if Broadcom can meet revenue expectations, then it will surpass Intel and AMD to become the world's second-largest chip supplier:

Broadcom's ASIC chips continue to receive large customer orders, including Google's parent company Alphabet. We believe that Meta will become Broadcom's next ASIC chip customer with an annual scale of US$1 billion within the next two years.

Broadcom previously stated that it expects this year's ASIC shipments to be US$3 billion, an increase of 50% compared to 2022. We believe that this year's ASIC revenue target may be higher than management's previous forecast. Google has increased its orders for TPU processors, and Google's TPU processor project alone is enough to drive Broadcom's revenue to over $3 billion.

We believe that next year's orders from Google to Broadcom may achieve TPU chip sales of over $4 billion (a year-on-year increase of 30-50%).

Seeing the development potential of Broadcom with the help of AI, analysts have raised their target prices for Broadcom:

• Benchmark Research raised its target price from $770 to $950;
• SIG Susquehanna Financial Group raised its target price from $785 to $910;
• Mizuho Securities raised its target price from $720 to $840;
• Truist Securities raised its target price from $700 to $890.

Broadcom's overnight US stock rose by nearly 3% to $812, and its stock price has risen by nearly 47% cumulatively since the beginning of this year, making it one of the best-performing chip stocks in 2023.