[Initial Insight] Paradigm Shift in the AI Era, the Rise of Customized Semiconductors

Interest in Broadcom, a customized semiconductor (ASIC) company, is heating up. Broadcom is emerging as a new powerhouse in the AI era through AI semiconductors that meet the needs of big tech companies. Wall Street likens Broadcom to a "tailor-made suit shop" and Nvidia to a "ready-to-wear store," expressing expectations that the customized semiconductor market will lead new changes.

Kwangho Lee, Head of the Industrial IT Division Corporate Team

In the early AI era, Nvidia's general-purpose graphics processing units (GPUs) played a key role in building data centers and generative AI services. However, the situation is changing recently as big tech companies turn their attention to customized semiconductors. Broadcom designs and manufactures customized semiconductors (XPUs) optimized for specific functions according to corporate demands, maximizing cost efficiency. This is gaining attention as an alternative to reduce reliance on Nvidia's relatively expensive GPUs. Broadcom's CEO, Hock Tan, recently stated in an earnings announcement that they are developing AI chips with three major cloud companies, known to be Alphabet (Google), Meta, and ByteDance. Broadcom’s customer-tailored approach is why it is gaining attention among big tech companies.

Broadcom’s strengths lie in customized design and cost reduction. Until now, big tech companies have relied on Nvidia GPUs when building data centers, but the emergence of Broadcom’s customized XPUs as an alternative is changing the atmosphere. Nvidia’s GPUs are highly versatile but expensive. In contrast, Broadcom’s XPUs are custom-made to include only the necessary functions, offering excellent cost efficiency.

Broadcom’s rise is also evident in the stock market. Wall Street introduced a new acronym leading the U.S. stock market this year called ‘BATMMAAN,’ which stands for Broadcom, Apple, Tesla, Microsoft, Meta, Amazon, Google, and Nvidia?eight major U.S. tech stocks combined. This effectively adds Broadcom to the existing ‘Magnificent 7.’ Among individual investors investing in overseas stocks (known as Seohak Gaemi), Broadcom’s popularity is also strong. From the 27th of last month to the 2nd of this month, Broadcom was the most purchased stock by Seohak Gaemi. The purchase volume of about $120.79 million (approximately 177 billion KRW) reflects high market expectations.

The customized semiconductor boom is expected to have a positive impact on domestic semiconductor companies as well. In particular, the 6th generation high-bandwidth memory (HBM4) produced by Samsung Electronics and SK Hynix is expected to play an important role in the AI accelerator market. Broadcom is known to have requested customized HBM4 production from Samsung Electronics and SK Hynix, which will be used in AI accelerators ordered by big tech companies. As Samsung Electronics is increasingly likely to be selected as the main supplier of Broadcom’s HBM4, it is gaining an opportunity to narrow the gap with SK Hynix, which currently holds a 60% market share. Morgan Stanley forecasts that the customized AI accelerator market will grow from $12 billion (approximately 17.4 trillion KRW) in 2023 to $30 billion (approximately 43.5 trillion KRW) in 2027. With additional demand, the market size will expand even further.

Ultimately, the AI era will no longer remain in the era of general-purpose GPUs. The rise of customized semiconductors is not just a technological advancement but is forming a new ecosystem in the semiconductor market, changing the landscape of the global IT market. If domestic companies utilize this opportunity well, they will be able to secure new growth engines.