Broadcom Emerging as a New AI Chip Powerhouse... Will It End Nvidia's Ecosystem?

Broadcom Closes with Significant Gains for Two Consecutive Days
Big Tech Collaborates on AI Chip Development, Threatening Nvidia
Nvidia Stock Falls 10% from Peak... Entering Adjustment Phase

U.S. fabless company Broadcom is emerging as a challenger to AI chip leader Nvidia.

On the 16th (local time), Broadcom's stock price closed at $250, up 11% from the previous trading day on the New York Stock Exchange. Following a 24.4% surge on the 13th that pushed its market capitalization past $1 trillion for the first time, it marked two consecutive days of significant gains.

The stock price increase is attributed to expectations that Broadcom could threaten Nvidia, which dominates the AI chip market. In its quarterly earnings report on the 12th, Broadcom announced it is developing AI chips with three major cloud providers. CNBC reported, "Although Broadcom did not disclose the names of these clients, experts have largely assumed them to be Google, Meta Platforms, and China's ByteDance."

These companies are expected to use AI chips designed by Broadcom in their data centers by 2027. Broadcom is also reportedly collaborating with Apple and OpenAI to develop AI chips.

As big tech companies embark on developing their own AI chips alongside Broadcom, there is analysis suggesting cracks may appear in Nvidia's dominant position. Broadcom does not develop its own AI chips like Nvidia but is said to threaten Nvidia, which controls 80% of the AI chip market, through custom chip development with big tech clients.

Major investment banks have been raising their price targets for Broadcom. Goldman Sachs raised its 12-month target from $190 to $240, Barclays from $200 to $205, and Truist from $245 to $260. Bernstein named Broadcom its top pick among semiconductor stocks.

Nvidia's stock entered a correction phase. On the same day, Nvidia was the only one among the Nasdaq's "Magnificent 7" big tech stocks?including Alphabet (Google's parent company, +6.14%) and Tesla (+3.54%)?to close down 1.68% at $132. Nvidia's closing price was 10.9% lower than its all-time high of $148.28 on the 12th of last month. Its market capitalization also shrank to $3.232 trillion, ceding the No. 2 spot to Microsoft (MS).

Keith Lerner, Co-Chief Investment Officer (CIO) of U.S. investment advisory firm Truist Advisory Services, commented, "(AI) infrastructure requires Nvidia and its chips, but the market is indicating that there are beneficiaries beyond Nvidia."

However, some opinions remain uncertain whether Broadcom can practically threaten Nvidia. Nvidia has built a strong ecosystem with a significant "lock-in effect" through its proprietary programming software CUDA, which only works on its AI chips. This is why latecomers in AI chip development such as Intel and AMD, as well as big tech companies that have succeeded in developing their own AI chips, have yet to challenge Nvidia's dominance.