’The next Nvidia’: Broadcom is the AI chip stock to own in 2025, investor says
Broadcom is more likely to deliver big gains for investors in 2025 than AI chip leader Nvidia , as major technology companies seek to reduce their dependence on a single supplier, according to fund manager Stephen Yiu. Yiu, portfolio manager of the Blue Whale Growth Fund, said that while Big Tech giants, such as Microsoft , Amazon , Google and Meta Platforms , had bought up Nvidia’s graphics processing units (GPUs) in vast quantities, they were now also developing their own custom chips for artificial intelligence applications in an effort to diversify. “Broadcom is not Nvidia, but we would expect Broadcom to be the next Nvidia in terms of outperformance potential, just because they are working very closely with the big tech companies,” Yiu told CNBC’s Pro Talks on Wednesday . “Nvidia’s GPUs are very powerful, but at the same time also very expensive,” Yiu added. “From Microsoft’s perspective, you don’t want to become overly dependent on one single supplier.” AVGO YTD mountain Broadcom’s stock has surged more than 126 percent this year, reaching a market value of more than $1 trillion after reporting that its artificial intelligence revenue more than tripled to $12.2 billion in 2024 . The stock is one of Blue Whale’s top 10 positions. Broadcom’s Chief Executive Hock Tan revealed the company is developing custom artificial intelligence chips with three major cloud computing customers, which analysts have identified as Meta, Alphabet, and ByteDance. Tan projected these customers will each deploy 1 million artificial intelligence chips in networked clusters by 2027. While Yiu maintains an investment position in Nvidia, he has significantly reduced it from nearly 10 percent of his fund’s portfolio. “It’s a matter of the potential outperformance from here,” Yiu explained. “We’re not expecting Nvidia to double from here in the next two years. It’s very difficult from a law-of-large-numbers perspective.” Wall Street’s view Wall Street analysts have also grown increasingly bullish on Broadcom’s prospects. Goldman Sachs raised its price target for the shares to $240 from $190, citing ” even higher conviction on the company’s forward revenue and earnings growth outlook” in a report dated Dec. 15. Morgan Stanley analysts described Broadcom as “one of the most compelling ways to play AI semis ” over the next two to three years, while Bernstein analysts noted that the ” AI story seems to really be coming into its own ” as they raised their price target to $250. However, Bank of America cautioned about potential risks from “stiff competition against NVDA’s stronghold in merchant silicon and enterprise customers.” Nvidia remains the dominant force in artificial intelligence chips with a market value of $3.2 trillion and stock gains exceeding 165 percent this year. Yiu believes Broadcom offers a better investment opportunity precisely because of its smaller size. “For a $1 trillion company to grow 50% to become $1.5 trillion is reasonable. But for Nvidia to do that, they would need to add another $1.5 trillion, which is a very big number,” he said. The shift in artificial intelligence chip spending comes as major technology companies seek to optimize their massive investments in artificial intelligence infrastructure. Broadcom’s custom chips, known as XPUs, differ from Nvidia’s graphics processing units and are designed specifically for each customer’s needs. The company’s growing artificial intelligence business is part of a diverse portfolio, which includes networking components used to connect thousands of artificial intelligence chips and a substantial software division following its recent $69-billion acquisition of VMware. Taking profits Broadcom’s more than 30% rally this month alone has meant that CNBC’s Investing Club is now more cautious on the stock. Jeff Marks, director of portfolio analysis, said the Club would have trimmed its position if permitted. “Even though the market is technically oversold — meaning we are more of a buyer than a seller — we would be selling 100 shares of Broadcom on Monday if we were not restricted.” “Although we remain bullish on the long-term AI outlook CEO Hock Tan outlined last week on his earnings call , our discipline dictates it is time to ring the register and lock in gains on the stock’s terrific 115% move this year. We are downgrading our rating to a 2 ,” Marks said. — CNBC’s Ari Levy, Ashley Capoot and Michael Bloom contributed reporting.
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