On Friday, shares of semiconductor companies with a focus on artificial intelligence (AI) experienced notable gains following Broadcom (NASDAQ:AVGO)'s positive financial results, which highlighted a surge in demand for its custom AI chips. Broadcom's forecast for persistent growth in this area has seemingly lifted investor sentiment for the broader sector.
Broadcom (NASDAQ:AVGO) reported a 220% annual increase in AI revenue, driven by demand for processors and networking components. Despite a projected downturn in non-AI chip demand in the first quarter, its stock soared by 14%. This upbeat announcement rippled through the industry, with several of Broadcom's competitors also seeing their shares rise.
Marvell Technology (NASDAQ:MRVL) saw a 6.4% increase in its share price. Other semiconductor companies also benefited, with Micron Technology (NASDAQ:MU) up by 2.25%, Nvidia (NASDAQ:NVDA) climbing 1.5%, Advanced Micro Devices (NASDAQ:AMD) increasing by 1.4%, and Taiwan Semiconductor (NYSE:TSM) rising 2%.
Analysts have taken note of the developments, with Morgan Stanley (NYSE:MS) commenting on the robust results despite expectations of a slowdown. The firm acknowledged the durability of the ASIC revenue cycles and the potential for investor interest to return to stocks with long-term momentum. They have adjusted their price target for Broadcom, raising it to $233 from $180, which represents a 29% upside from the current close.
Raymond (NS:RYMD) James provided insights into Broadcom's financial quarter results and revenue outlook, which aligned with expectations. The call's highlight was management's projection of a $60-90 billion opportunity in AI by 2027 at its three hyperscale customers. This forecast is based on the construction of significant GPU/XPU clusters and could be further expanded with two new hyperscale customers. The projection suggests a compound annual growth rate of approximately 60% at these customers, a figure that aligns with the growth expectations of the overall accelerator market shared by peers like AMD. However, the firm also expressed caution, considering it premature to have conviction on the 2027 market share and SAM estimates, and indicated a preference for other companies like Nvidia, Marvell, AMD, Micron, and SemiCaps in the data center AI theme.
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