Broadcom's stock strikes Wall Street as a winner in a number of respects, especially after Alphabet shared more information about how it plans to finance its artificial-intelligence ambitions.
Broadcom stock jumped another 4% in overnight trading.
While Alphabet $(GOOGL)$ $(GOOG)$ investors may not like Monday afternoon's announcement of an $80 billion equity offering that will dilute existing shareholders but help support the company's aggressive purchasing of AI hardware, Broadcom $(AVGO)$ stands to benefit.
The chip maker has co-developed Google's custom tensor processing units for more than a decade, and the tech giant said in April it expects to start seeing revenue from its in-house chips later this year. While Google doesn't sell its TPUs to third parties, AI startup Anthropic uses the chips, and the company is starting to deliver them to select customers for deployment in their data centers.
Shares of Broadcom rose nearly 5% on Tuesday. The stock may be basking in the enthusiasm for rival Marvell Technology $(MRVL)$, which saw its own shares jump 33% on Tuesday after Nvidia CEO Jensen Huang touted it as "the next trillion-dollar company" at the annual Computex tech trade show in Taiwan. Both Marvell and Broadcom make application-specific integrated circuits, which are custom chips.
Broadcom has been at the center of hype for custom chips, but the company commands another booming market that one analyst expects could soon drive almost a third of its AI revenue.
It dominates the market for chipsets that are essential for scale-up and scale-out data-center networking and has set "very high barriers to entry" with its Tomahawk line, J.P. Morgan analyst Harlan Sur wrote. The high-speed, low-latency Tomahawk Ethernet switching chips control vast amounts of data moving between servers.
The chip maker's "aggressive 2-year cadence" and ability to double switching throughput performance with each generation "drives our confidence that Broadcom remains one/two steps ahead of competitors," and will be able to maintain its 70% share of the data-center switching and routing market, Sur said in a Tuesday note.
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Broadcom is likely preparing to sample its next-generation Tomahawk 7 chipset for next year, Sur said, which will be used in hyperscaler data centers and to power massive AI chip clusters for companies including Google, Amazon.com (AMZN), Meta Platforms (META) and now Anthropic and OpenAI. The preceding Tomahawk 6 chipset, which supports co-packaged optics, is currently ramping after it started shipping in the second half of last year, he added.
Therefore, Sur estimates that the company's AI networking revenue will more than double to at least $45 billion in fiscal 2027, which would allow the segment to make up about 28% of Broadcom's total AI revenue, he said.
That revenue will also come from the ramp of Broadcom's next-generation Jericho 4 scale-across router platform, Tomahawk Ultra scale-up Ethernet networking and digital signal processors, Sur said.
"Very few competitors have the [research and development] scale/IP to be able to match the cadence/capabilities of Broadcom's networking silicon franchises and the company continues to stay one/two steps ahead of its competitors," Sur said.
Broadcom is due to report quarterly earnings after Wednesday's closing bell.