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Fund manager Stephen Yiu by Growth Fund for the Blue Whale predicted that Broadcom Inc. (NASDAQ:AVGO) will deliver significant returns for investors by 2025, potentially surpassing the AI chip heavyweight Nvidia company (NASDAQ:NVDA).
What happened: Yiu said tech giants like it Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), Google LLC (NASDAQ:GOOGL), and Metaplatforms Inc. (NASDAQ:META) want to broaden their supplier base for AI chips. Despite their substantial purchases of Nvidia’s GPUs, these companies are now also creating their own custom chips for AI applications, CNBC reported on Monday.
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Yiu sees Broadcom as the next Nvidia in terms of potential outperformance, thanks to its strong partnerships with major tech companies.
“Nvidia’s GPUs are very powerful, but at the same time very expensive,” Yiu noted. “From Microsoft’s perspective, you don’t want to become too dependent on a single supplier.”
Broadcom’s year-to-date returns are up 103.42% as of pre-market Monday, according to Benzinga Pro. It reached a market capitalization of more than $1 trillion after announcing that its AI revenues would triple to $12.2 billion by 2024. The company is working with three major cloud computing customers, Meta, Alphabet and ByteDance, to deliver custom Develop AI chips.
Despite still maintaining an investment in Nvidia, Yiu has significantly removed it from almost 10% of his fund’s portfolio. He views Broadcom as a more attractive investment opportunity because of its smaller size.
“It’s reasonable for a $1 trillion company to grow 50% to $1.5 trillion. But if Nvidia wanted to do that, they would have to add another $1.5 trillion, which is a very large number,” he explained.
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Why it’s important: The CEO of Broadcom Hak Tan has expressed great confidence in the sustainability of the AI boom. Major technology companies such as Google, Meta and ByteDance are investing heavily in designing custom processors to accelerate the training and deployment of AI systems. Even OpenAI and Apple are working with Broadcom to develop their AI server chips, diversifying their exposure to Nvidia.