AI: Broadcom an alternate for AI chips. RTZ #572

...growing option beyond Nvidia for Meta, Apple, Google eta al

Continuing our discussion of big tech companies getting their share of AI driven growth in this AI Tech Wave is Broadcom, led by CEO Hock Tan.

It’s a less familiar name, which started as a semiconductor company in 1991, grew via acquisitions to be a broader infrastructure company with hardware and software, and has managed to a 10x return since 2018 to become the eighth trillion dollar plus US company this week. Up 24% Friday and another 10% this week, following new of AI related growth from its top customers Meta, Microsoft, and others. It’s worth unwrapping a bit.

As CNBC explains in a detailed piece “Broadcom’s long and winding path to the trillion-dollar club, and how Trump played a role”:

“Broadcom reported better-than-expected profit in its latest quarterly earnings report on Thursday, even as revenue came in just shy of estimates. Broadcom’s artificial intelligence business has lifted overall growth to rates typically reserved for company’s a fraction its size.”

“In the fiscal fourth quarter, AI revenue increased 150% to $3.7 billion, with some of that growth coming from ethernet networking parts used to tie together thousands of AI chips.”

“That drove an overall increase in revenue of 51% to $14.05 billion. Broadcom’s infrastructure software division generated $5.82 billion in revenue for the quarter, nearly tripling from last year’s $1.97 billion, a number that included a big boost from VMware.”

“President Donald Trump introduces Broadcom CEO Hock Tan prior to Tan announcing the repatriation of his company’s headquarters to the United States from Singapore during a ceremony in the Oval Office of the White House, in Washington, DC, November 2, 2017.”

The company though not quite Nvidia, is an alternative provider of AI server chips dubbed ‘XPUs’, as opposed to Nvidia’s GPUs and Google’s ‘TPUs’:

“Within the AI boom, Broadcom hasn’t quite kept pace with Nvidia, whose graphics processing units are being used to power the training and running of the most powerful AI models. Nvidia’s market cap has swelled by over 170% this year to $3.3 trillion, behind only Apple and Microsoft among the most valuable public companies in the world. Broadcom has doubled in value this year.”

“While trailing Nvidia, Broadcom has still positioned itself for hefty growth at a time that former chip titan Intel is downsizing and restructuring. It’s also far surpassed Advanced Micro Devices, which is valued at $206 billion after dropping 14% this year.”

“Broadcom refers to its custom AI accelerators as XPUs, which are different than the GPUs Nvidia sells. Broadcom said it doubled shipments of XPUs to “our three hyperscale customers.” The company doesn’t name the customers, but analysts say the three are Meta, Alphabet and TikTok parent ByteDance.”

The market is big enough for now for them all, given the range of accelerating demands for AI Chips to do far more than the training and inference of just a couple of years ago. Now it’s AI reasoning, Agents, Synthetic Data and Content, along with a wider range of AI applications and services to come. Nvidia of course has pole position as the predominant and preferred AI GPU chips and infrastructure provider. Despite competing with its best customers.

Besides the big AI chip customers above, the comnpany also caters to Apple as the Information highlights in “Apple Is Working on AI Chip With Broadcom”:

“Apple is developing its first server chip specially designed for artificial intelligence, according to three people with direct knowledge of the project, as the iPhone maker prepares to deal with the intense computing demands of its new AI features.”

“Apple is working with Broadcom on the chip’s networking technology, which is crucial for AI processing, according to one of the people. If Apple succeeds with the AI chip—internally code-named Baltra and expected to be ready for mass production by 2026—it would mark a significant milestone for the company’s silicon team. The team honed its expertise designing cutting-edge chips for the iPhone before later advancing to designing Mac processors that set new standards for performance and energy efficiency.”

I discussed Apple’s efforts on AI server chips in an earlier piece. This continues with Broadcom:

“Apple’s decision to develop its own server chip, which is intended for internal use rather than as a consumer product, also highlights its longstanding preference to not buy chips from Nvidia, which dominates the market for AI chips.”

“Apple last month began the slow rollout of some of its first generative AI features, known as Apple Intelligence, by making them available to users with newer iPhones and Macs in certain countries. The features can generate and proofread text, create images, and summarize notifications and webpages, among other things.”

Broadcom has also discussed new AI chips with OpenAI. And so for now, as the Information notes, “Broadcom stock soars on Upbeat AI Talk”:

“Despite the fuzziness about the revenue potential, investors are upbeat.”

Broadcom is well positioned amongst the big tech companies, as they all concurrently work closer with Nvidia, while building their own chips for AI.

It’s a ‘coopetition’ and ‘frenemies’ environment for a few years. And Broadcom is coming along for the ride. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)