Broadcom Partners with OpenAI for Custom AI Chip Development
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Oct 29 2024
0mins
Source: Benzinga
Broadcom Inc's stock is down 3.01% in pre-market trading, hitting a 20-day low amid a broader market decline with the Nasdaq-100 down 1.42% and the S&P 500 down 0.68%.
The decline comes despite the announcement of a significant partnership between Broadcom and OpenAI to develop the Jalapeño chip, designed for AI inference tasks. This collaboration aims to enhance computational capabilities and reduce reliance on Nvidia GPUs, marking a strategic shift in the AI hardware landscape. The Jalapeño chip is expected to be deployed by the end of the year, indicating a strong commitment to advancing AI technology.
This partnership positions Broadcom favorably in the competitive AI market, although the current stock decline reflects broader market weakness rather than the potential of the new chip. Investors will be closely monitoring the impact of this collaboration on Broadcom's future performance.
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Analyst Views on AVGO
Wall Street analysts forecast AVGO stock price to rise
30 Analyst Rating
29 Buy
1 Hold
0 Sell
Strong Buy
Current: 360.450
Low
370.00
Averages
457.75
High
525.00
Current: 360.450
Low
370.00
Averages
457.75
High
525.00
About AVGO
Broadcom Inc. is a global technology firm that designs, develops, and supplies a range of semiconductors, enterprise software and security solutions. The Company operates through two segments: semiconductor solutions and infrastructure software. Its semiconductor solutions segment includes all of its product lines and intellectual property (IP) licensing. It provides a variety of radio frequency semiconductor devices, wireless connectivity solutions, custom touch controllers, and inductive charging solutions for mobile applications. Its infrastructure software segment includes its private and hybrid cloud, application development and delivery, software-defined edge, application networking and security, mainframe, distributed and cybersecurity solutions, and its FC SAN business. It provides a portfolio of software solutions that enable customers to plan, develop, automate, manage and secure applications across mainframe, distributed, mobile and cloud platforms.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Future Plans Attract Investment: SpaceX's ambitious future plans, including establishing data centers in space and enabling everyday human space travel, spark investor interest, mirroring Tesla's successful trajectory and potentially leading to long-term investment returns.
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- Stock Price Volatility: Despite SpaceX's stock remaining relatively flat during its first 15 trading days, experiencing ups and downs, the underlying business potential, particularly with the rapid growth of Starlink and xAI, continues to attract investor interest.
- Business Diversification: SpaceX is transforming from a single rocket launch company into a conglomerate with successful subsidiaries, where Starlink provides internet services to remote areas and xAI boasts significant advantages in artificial intelligence infrastructure, enhancing the company's competitive position in the market.
- Investor Caution: While SpaceX's ambitious future plans are appealing, its current valuation at 112 times the projected $18.7 billion revenue for 2025 raises concerns, prompting investors to be cautious, especially before the company releases its first quarterly earnings report as a public entity.
See More
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- Sector Developments: Broadcom's multi-year agreements with Apple for custom ASIC silicon through 2031 have bolstered the semiconductor sector, while UBS raised its Q3 DDR contract pricing forecast to a 32% quarter-on-quarter increase, signaling an improving supply-demand dynamic in the memory market.
- Market Volatility: Lattice Semiconductor has experienced 31 moves greater than 5% over the past year, and while today's rise is seen as significant, the market does not perceive it as fundamentally altering the company's outlook, highlighting investor uncertainty about future performance.
- Long-term Performance: Despite a 78.3% increase since the beginning of the year, Lattice shares are still trading 9.3% below their 52-week high, indicating that while investors are taking profits, there remains cautious optimism about future growth prospects.
See More
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- Optimistic Market Sentiment: Retail sentiment for SPY, QQQ, and DIA on Stocktwits was 'bullish' with message volumes categorized as 'normal' to 'high', reflecting a positive outlook among investors regarding market prospects.
- Major Transaction Dynamics: Lockheed Martin (LMT) entered a definitive agreement to acquire Ultra Maritime for $3.45 billion, aiming to enhance its capabilities in the rapidly evolving undersea defense market, highlighting a trend of consolidation in the defense industry.
See More
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- Surge in AI Revenue: Broadcom's Q2 semiconductor revenue from AI reached $10.8 billion, marking a 143% year-over-year increase that surpassed forecasts, driven by strong demand for custom AI accelerators and networking, with expectations for Q3 AI chip revenue to exceed $16 billion, reflecting over 200% growth year-over-year, contributing to an overall revenue guidance of $29.4 billion, up 84%.
- Expanding Customer Base: Broadcom now serves six core custom chip customers, including OpenAI, Anthropic, Meta, and Alphabet, highlighting its strong market position in the AI sector, with the successful development of the Jalapeño chip further validating its business model.
- Strong Cash Flow Performance: The company generated $10.3 billion in free cash flow last quarter, representing 46% of total revenue, while also paying a quarterly dividend of $0.65, showcasing its robust cash generation capabilities; despite a trailing P/E ratio around 60, forecasted earnings suggest a drop to about 19, indicating improved profitability.
- Market Risk Analysis: Despite rapid growth, Broadcom's stock trades 24% below its 52-week high, primarily due to reliance on a few large AI customers and limited pricing power for custom chips, necessitating cautious investment; a moderate buy is recommended to mitigate potential risks.
See More
