Broadcom's deepening collaboration with major technology companies in the AI chip sector is posing a substantial threat to NVIDIA's GPU business. Citi analysts have lowered NVIDIA's target price to $200 due to intensifying TPU (Tensor Processing Unit, used to accelerate machine learning) competition, anticipating approximately $12 billion in reduced GPU sales by 2026.

Citi analysts noted that Broadcom's XPU (eXtended Processing Unit, a collective term for various processing units including TPU, DPU, CPU, etc.) business acceleration announced last week, driven by both new and existing customers, reflects companies like Google transitioning from indirect competition with NVIDIA to directly providing computing services to its competitors. This strategic shift could reshape the AI chip market landscape.

Despite the downward revision, Citi analysts maintain a buy rating on NVIDIA, believing that the adjusted fiscal 2025/26 forecasts still exceed market consensus by 2%/5%.

Last Friday's U.S. stock market showed divergent performance, with Broadcom surging on news of potential deep collaboration with OpenAI, while NVIDIA declined on competitive concerns. Market attention is currently focused on changing competitive dynamics in the AI chip sector.

**XPU Market Growth to Outpace GPU, but GPU Will Still Dominate AI Computing Market**

Citi expects:

The XPU market to achieve 53% year-over-year growth in 2026, significantly surpassing the 34% growth rate of AI GPU sales. This growth is primarily driven by capacity ramp-ups from Google, Meta, and Amazon.

Analysts anticipate that GPU sales will decline by approximately $12 billion in 2026 (with Meta contributing about $2 billion in GPU sales reduction, while the remaining $10 billion impact comes from other customers shifting to XPU solutions). This represents about a 5% impact on NVIDIA's previous forecast of $232 billion in commercial GPU sales for 2026.

Despite intensifying XPU competition, Citi believes GPUs will continue to maintain dominance in the AI computing market, with sales share expected to remain above 85%. Analysts noted that the revised expectations do not include China market factors. If NVIDIA resumes GPU shipments to China in the future, it could provide additional upside potential for its performance.

The new target price of $200 is based on a 30x price-to-earnings ratio multiplied by the adjusted 2026 earnings per share. Analysts emphasize that despite competitive pressures, NVIDIA's core position in the AI chip sector remains difficult to challenge in the short term.