Chipmaker Broadcom saw its shares climb over 11% on Monday, emerging as the top performer in the S&P 500. The surge is directly linked to the company's deepening role in supplying custom artificial intelligence chips for Google, positioning it as a critical player in the expanding AI hardware market.
As investors seek opportunities beyond the most prominent names in AI, Broadcom's long-standing collaboration with Google on specialized processors is gaining significant attention on Wall Street, with analysts raising forecasts based on the partnership's growing importance.
Key Takeaways
- Broadcom's stock increased by 11.1% in a single day, marking its best performance since April and leading the S&P 500.
- The company designs and manufactures Google's custom Tensor Processing Units (TPUs), specialized chips for AI workloads.
- This partnership positions Google's TPUs as a significant alternative to Nvidia's widely used GPUs for AI tasks.
- Multiple financial analysts have recently upgraded their price targets for Broadcom, citing the growth potential of its AI-related revenue from Google.
Market Reacts to Deepening AI Ties
Broadcom's stock has been on a significant upward trend this year, achieving a 60% gain year-to-date. Monday's rally, however, was particularly noteworthy, making it the best-performing stock within the Technology Select Sector SPDR fund (XLK), which tracks the tech sector of the S&P 500.
This investor enthusiasm is not happening in a vacuum. It mirrors a similar rise in the stock of Google's parent company, Alphabet, which has seen its shares increase by 21% over the past month. The connection between the two companies is becoming a central theme for investors analyzing the AI sector.
The ASIC Advantage
The core of the partnership revolves around Application-Specific Integrated Circuits, or ASICs. These are microchips designed for a particular use rather than for general-purpose use. In this case, Broadcom helps create ASICs specifically for Google's AI models, known as Tensor Processing Units (TPUs).
The Google Connection Explained
The relationship between Broadcom and Google is not new. The two tech giants have been collaborating on custom AI chips since 2016. Broadcom's role is to help design and manufacture Google's proprietary TPUs.
These TPUs are the hardware backbone for much of Google's internal AI infrastructure, powering everything from search algorithms to the training of large language models like Gemini. As Google intensifies its focus on AI, the demand for more powerful and efficient custom chips has grown substantially.
The current collaboration is on its 7th generation of the chip, indicating a mature and evolving partnership. The next generation is reportedly codenamed "Ironwood."
By developing its own custom hardware, Google aims to optimize performance for its specific AI software and reduce its reliance on third-party chip suppliers. This strategy makes Broadcom an essential, albeit less visible, partner in Google's long-term AI ambitions.
A Challenger to Nvidia's Dominance
In the world of artificial intelligence, Nvidia's graphics processing units (GPUs) have become the industry standard for training and running complex models. However, the custom ASIC approach taken by Google and Broadcom represents a significant alternative.
While Nvidia's GPUs are powerful general-purpose tools, Google's TPUs are tailored specifically for the company's AI workloads. This specialization can lead to greater efficiency and performance for Google's ecosystem. Analysts see the growing success and adoption of TPUs as a tangible competitive force in the AI hardware market.
"Outside of the Nvidia GPU for AI workloads, the TPU is the most proven ASIC out there ā and now it has the most tangible momentum," noted Ben Reitzes of Melius Research in a recent client note.
The increasing processing demands of modern AI, including multimodal models that handle text, images, and other data types, are driving the need for more specialized hardware. Google reported that the number of tokens it processes monthly grew from 480 trillion in April to 1,300 trillion in October, illustrating the exponential growth in computing needs.
Wall Street's Bullish Outlook
The financial community has taken strong notice of this strategic relationship. Several analysts have recently upgraded their outlooks and price targets for Broadcom, identifying the company as a key beneficiary of Google's AI expansion.
Analyst Price Targets
- Melius Research: Ben Reitzes reiterated a buy rating and increased his price target to $475.
- Jefferies: Blayne Curtis, who holds one of the highest price targets on the stock, named Broadcom a top pick and raised his target to $480.
- Wedbush Securities: Dan Ives described Broadcom and Alphabet as "the new AI plays the market is rediscovering," highlighting the massive market for ASIC chips.
Analysts believe the revenue from Google could become a much more significant part of Broadcom's business in the coming years. Blayne Curtis of Jefferies wrote that ASIC volumes for Google "should become much more meaningful in C26/27" as the company's AI compute needs continue to escalate.
For investors, Broadcom is increasingly seen not just as a stable semiconductor company but as a high-growth AI infrastructure play with a direct line into one of the world's largest technology companies. This shift in perception is fueling the stock's impressive performance and cementing its role in the ongoing AI revolution.