Shares of Broadcom (AVGO +4.89%) rallied on Monday, up 3.6% as of 12:20 p.m. ET. The move was all the more notable since the stock rallied 9.4% last Friday, following last Thursday's earnings release.
Broadcom has become a massive AI winner due to its custom ASIC (application-specific integrated chip) business, which several large cloud and AI companies are using to aid their in-house designed AI chip efforts. On the back of Thursday's announcement that Broadcom had landed a new large ASIC customer, analysts are raising their price targets on the stock today... while also downgrading a big competitor.
NASDAQ: AVGO
Key Data Points
Argus upgrades Broadcom, Citi downgrades Nvidia
On the heels of CEO Hock Tan's announcement that Broadcom had landed a fourth major AI ASIC customer with a $10 billion order, The Wall Street Journal later confirmed the new customer is OpenAI, the parent company of ChatGPT.
The optimism over the new account continued today, as sell-side analysts at Argus Research increased their price target on Broadcom's stock from $285 to $375. The massive 32% increase is now one of the highest price targets on Wall Street, with the current Street-high price target of $416.
Interestingly, not only did Broadcom receive another in a line of analyst upgrades, but analysts at Citigroup even lowered their Nvidia (NVDA +0.10%) price target by $10 due to the Broadcom coup, albeit retaining a buy rating and a $200 price target. Citi analyst Atif Malik said the lowered price target reflects a 4% cut to next year's Nvidia revenue estimates. Malik now sees a total $12 billion worth of Nvidia GPU revenue going to OpenAI's internal chip effort in collaboration with Broadcom.
Image source: Getty Images.
AI's second act: Rise of the ASICs?
The AI revolution is entering a new act, with two big questions. First, are the growing use cases of AI generating enough payoff to justify all this investment? And second, will custom ASICs grab significant market share from Nvidia GPUs?
Both questions will be hugely important for the future of these stocks, especially now that Broadcom trades at 40 times next year's earnings estimates and Nvidia trades at 37 times.
