By Saqib Iqbal Ahmed and Lewis Krauskopf NEW YORK, Dec 12 (Reuters) - The red-hot trade backing artificial intelligence-related stocks has taken a bruising from back-to-back troubling updates from Oracle and Broadcom, reigniting concerns about frothy valuations and an AI bubble. Still, investors say reasons for optimism about AI remain intact, and many are wary about calling a top. Investors have piled ​into AI-related companies this year as the technology has taken off, with promises to make Corporate ...

By Zaheer Kachwala and Joel Jose Dec 12 (Reuters) - Broadcom shares fell more than 11% on Friday after the chipmaker warned growing sales of lower-margin custom AI ​processors were squeezing profitability, sparking worries that the business may be less ‌lucrative. The warning on margin impact deepened investor jitters over Big Tech's AI returns, a day after Oracle fell ‌10.8% due to high capital spending for a debt-funded AI infrastructure buildout. Investor scrutiny of AI spending has intensified in r ...

Core Insights - Nvidia has been the dominant player in the AI semiconductor market, holding an estimated 80% market share, but faces emerging competition that could challenge its position [2][12] - Broadcom is positioning itself as a significant competitor in the AI chip market, particularly with its custom application-specific integrated circuits (ASICs) designed for AI inference applications [4][8] Company Performance - Nvidia reported $41 billion in revenue in the last quarter, while Broadcom's AI revenue was $5.2 billion, indicating a substantial gap [4] - Broadcom's AI revenue grew by 63% year-over-year, surpassing Nvidia's 56% growth in data center revenue, suggesting a shift in market dynamics [6][12] Market Trends - The demand for AI inference applications is increasing, outpacing the need for AI model training, which is beneficial for Broadcom's custom processors [7][8] - By 2030, it is projected that 80% of chips performing AI inference tasks will be ASICs, a significant increase from 15% last year, indicating a growing market for Broadcom [12] Strategic Partnerships - Broadcom has secured a deal with OpenAI to design and deploy 10 gigawatts of custom AI processors from 2026 to 2029, potentially adding $100 billion to its revenue during this period [10][11] - The company has a strong revenue backlog of $110 billion, which is expected to grow further due to recent contracts, including the one with OpenAI [11] Competitive Positioning - Broadcom holds a 70% share in the custom AI processor market and aims to increase its overall AI chip market share to 24% by 2027, more than doubling its estimated share of 11% in 2025 [13] - The company's growth potential is underscored by its price/earnings-to-growth (PEG) ratio of 0.55, indicating it may be undervalued relative to its growth prospects [15][16]

Core Insights - Nvidia has established itself as the leading player in the global semiconductor industry, primarily due to its GPUs that are essential for AI applications [1] - The company is projected to see a 58% increase in revenue this fiscal year, exceeding $206 billion, with its stock gaining 34% this year [2] - Despite Nvidia's strong performance, Broadcom has outperformed it in stock appreciation, rising 48% this year, and may continue to do so in 2026 [3] Nvidia's Market Position - Nvidia currently dominates the AI data center GPU market with an estimated 92% market share as of last year [6] - The company has been the primary choice for AI model training, exemplified by OpenAI's use of Nvidia's A100 GPUs for ChatGPT [5] Emerging Competition - A recent deal between OpenAI and Broadcom for custom AI accelerators, amounting to 10 gigawatts, could challenge Nvidia's market dominance [6] - The deployment of these custom AI processors is expected to be completed by the end of 2029, representing a significant investment for Broadcom [7] Financial Implications - The deal with OpenAI could potentially generate a $6 billion addressable market for Broadcom from each gigawatt of data center capacity [7] - Broadcom's revenue growth in the AI sector may be bolstered by this agreement, allowing it to maintain competitive momentum against Nvidia [8]

Core Insights - Broadcom Inc (NASDAQ:AVGO) has officially partnered with OpenAI to co-develop custom AI processors and 10 gigawatts of AI accelerators, marking a significant collaboration after 18 months of working together [1] Stock Performance - AVGO's stock increased by 9.6%, trading at $355.81, approaching its record high of $374.23 from September 11 [2] - The stock has shown a year-to-date increase of 53% [2] - The 14-day relative strength index (RSI) is at 26.9, indicating that the stock is in "oversold" territory, which often precedes a short-term bounce [2] Options Activity - There has been a notable increase in options trading, with 330,000 calls and 187,000 puts exchanged, which is double the typical volume [4] - The October 400 call option is the most popular, with new positions being opened [4] - Broadcom's Schaeffer's Volatility Index (SVI) is at 50%, ranking in the low 9th percentile of its annual range, suggesting that options traders are anticipating low volatility [4]

Group 1: Partnership and Technology Development - Broadcom is partnering with NTT to develop optical semiconductor devices aimed at reducing data center power consumption by up to 50% [1][2] - The collaboration focuses on creating optical-based semiconductor packages that can potentially double processing speed and capacity [3] - NTT's devices will support its Innovative Optical and Wireless Network (IOWN) initiative, targeting energy-efficient infrastructure for AI [4] Group 2: Market Position and Financial Outlook - Broadcom's stock has increased by 45% year-to-date, significantly outperforming the Nasdaq 100's 19% gain, driven by demand for custom chips and VMware infrastructure [4] - The company is transitioning from a smartphone component supplier to a key player in AI chips and networking, capitalizing on the growth of data centers [5] - Broadcom raised its fiscal 2026 AI revenue growth outlook to 50–60%, with projected AI chip sales reaching $6.2 billion next quarter [6]

Core Viewpoint - Broadcom is positioned to capitalize on the disruptive trend of artificial intelligence (AI), with potential for significant revenue growth and stock price appreciation over the long term [2][4][10]. Group 1: Growth Opportunities - Broadcom estimates an addressable market for AI could reach between $60 billion to $90 billion annually in the coming fiscal years, driven by demand from cloud hyperscalers using its custom AI processors and networking chips [4]. - The company is engaged with two additional hyperscalers to develop customized AI accelerators, which are expected to contribute to growth starting next year [5]. - Broadcom has recently been selected to develop custom AI chips for two more cloud hyperscalers, leading to upward revisions in revenue estimates [6]. Group 2: Infrastructure Software Business - Broadcom's infrastructure software business is experiencing robust growth, with a year-over-year increase of 25% in the second quarter of fiscal 2025 [8]. - The private cloud server market is projected to grow from nearly $114 billion in 2023 to over $508 billion by the end of the decade, indicating sustained growth potential for Broadcom's software segment [9]. Group 3: Earnings Growth Potential - Analysts forecast a 36% increase in earnings for Broadcom this year, with expectations of continued double-digit growth in the following years [10]. - If Broadcom achieves an annual earnings growth rate of 20% post-fiscal 2027, its earnings per share could reach $13.88 in five years, potentially driving the stock price to $527, more than double its current value [12][13].