Broadcom (AVGO) stock surged Thursday on news that the company gained a new AI chip customer.
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The Palo Alto, Calif.-based company held an investor meeting Wednesday titled Enabling AI Infrastructure. At the event, Broadcom highlighted its custom silicon, switch and networking chip technologies optimized for data centers running artificial intelligence applications.
Broadcom also revealed that it added a new customer for its AI chip business, which makes application-specific integrated circuits, or ASICs. The company didn’t say who the new customer is, which led some Wall Street analysts to speculate that it could be a major tech company.
Analysts at Citigroup and JPMorgan speculated that the customer is TikTok parent ByteDance. Other Broadcom AI ASIC customers include Alphabet‘s (GOOGL) Google and Facebook parent Meta Platforms (META).
However, Truist Securities analyst William Stein surmised that the third AI ASIC customer could be Amazon (AMZN) or Apple (AAPL).
“Management characterized this as a consumer (as opposed to enterprise) AI customer,” Stein said in a client note. “Considering such an engagement requires substantial size (and likely a history of custom silicon), we surmise the customer is either Amazon or possibly Apple. However, our conviction on this matter is only moderate.”
Stein rates Broadcom stock as buy with a price target of 1,566.
Broadcom Stock Jumps On News
On the stock market today, Broadcom stock rose 5.6% to close at 1,348.
Elsewhere on Wall Street, JPMorgan analyst Harlan Sur reiterated his overweight rating on Broadcom stock with a price target of 1,700.
“The team articulated a compelling and sustainable growth strategy for its AI datacenter networking and ASIC business,” Sur said in a client note.
Broadcom said its custom AI chips have cost and power advantages over graphics processing units, or GPUs, from the likes of AMD (AMD) and Nvidia (NVDA). That’s because its chips are optimized for specific workloads.
Stock Upgraded To Buy From Neutral
Broadcom now expects to generate more than $10 billion in AI chip revenue in 2024, or 35% of its semiconductor sales. Last year, AI chip sales were about 15% of the company’s semiconductor revenue.
TD Cowen analyst Matthew Ramsay upgraded Broadcom stock to outperform from market perform. He also raised his price target to 1,500 from 1,400.
“Our rating has admittedly been on the wrong side of this remarkable franchise for some time now, as the stock has outperformed the broader SOXX index by about 50% over the last two years,” Ramsay said in a client note.
He added, “But despite this recent run we are confident in sustainability and diversity of growth and potential upside to consensus’ forward estimates driven by AI compute/networking and software growth/margins.”
Broadcom stock is on two IBD stock lists: Big Cap 20 and Tech Leaders.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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